Finance Secretary Carlos Dominguez III said the government will stick to its sustainable and prudent borrowing program up until next year when the Duterte administration’s term ends.
This debt management strategy, which Dominguez said the government has pursued long before the pandemic struck last year, has allowed the government to reverse the past administrations’ anemic spending on infrastructure and to “dramatically” increase investments in social services to a three-year average that is higher than the combined average annual expenditure of the past four administrations.
As a result, Dominguez said the government was able to bring down poverty incidence to 16.7 percent in 2018 from 23.5 percent in 2015, which translates into six million Filipinos lifted out of poverty in the first four years of the Duterte presidency.
“Our financing programs for 2021 and 2022 reflect the same strategy. We will continue with our sustainable and prudent borrowing to fund both economic investments and the pandemic response,” Dominguez said at Monday’s House committee on ways and means meeting in Congress.
The committee chaired by Albay Rep. Joey Salceda held the briefing in relation to its deliberations on several bills seeking the creation of an oversight body to monitor and oversee the government’s borrowings — and possibly set a ceiling on the country’s indebtedness.
“The financing also considers provisioning for buffers to ensure a strong cash position amidst the pandemic. With abundant liquidity in our financial system, we will continue borrowing more from our domestic sources,” Dominguez said.
He addedincurring debt even in the middle of the current coronavirus disease 2019 (COVID-19) pandemic is the “right thing to do for the government if this will help fund the people’s needs and generate a higher level of economic activity necessary to keep the economy afloat.”
As of the latest count, the country’s debt ballooned to P11.6 trillion in July, from P5.9 trillion prior to the assumption in office of the current administration.
“However, we must use our borrowings in a prudent manner. We should use them to beef up our health requirements and to generate productive economic activity. If we do not do these things, the economy will collapse even further. We have to spend wisely and that’s exactly what we have been doing,” Dominguez said
“Through the length of this pandemic, the Duterte administration never lost sight of the demands of fiscal responsibility,” he added.
He said the country can achieve a solid recovery from the pandemic “by keeping our deficit and debt ratios within reasonable levels.”
According to Dominguez, the Duterte administration’s debt management program, supported by improved revenue collections through bold tax reforms and prudent fiscal management, enabled it to bring down the Philippines’ debt-to-gross domestic product (GDP) ratio to a historic low of 39.6 percent, which means that its heavy investments on infrastructure and social services have paid off.
“Resources have been allocated to ensure that our economy consistently outgrew our debt,” he said.
When the COVID-19 pandemic necessitated unplanned spending to reinforce the country’s health system, purchase medical equipment and procure vaccines, this temporarily pushed up the deficit level to 7.6 percent last year, or almost double the threshold that the government worked hard to maintain, but is still financially sustainable, Dominguez said.
“Due to increased spending to support both health and economic requirements, the pandemic resulted in a global trend of higher government debt-to-GDP ratios last year.
What sets the Philippines apart, however, is that we entered 2020 with a historic low debt-to-GDP ratio of 39.6 percent. This means that we could better absorb additional borrowings than other countries whose debt ratios were already at 60 percent before the pandemic,” he added.
Dominguez stressed the 15-percentage-point increase in the debt-to-GDP ratio from 39.6 percent in 2019 to 54.6 percent in 2020 “is still within the prescribed bounds of fiscal viability and the experience of our neighbors and rating peers globally.”
He said the sustainability of the country’s debt depends on the cost and the ability to generate economic activity to pay it off.
“It is important to note that about 25 percent of our domestic economy consists of government spending. If we did not increase the level of public spending through borrowings, the domestic economy would have collapsed. This event would have inflicted a far more painful toll on our people,” he said.
For the remainder of the Duterte administration, Dominguez said the government will maintain the pace of the “Build, Build, Build” signature program since infrastructure investments have the highest multiplier effect on economic growth.
“This means keeping infrastructure spending at or above 5 percent of GDP, as it had done before the pandemic, to overturn the measly 2 percent spent by the past four administrations,” he said.
