DOF head allays concerns on debt servicing

MANILA, Philippines — The country’s finance chief said the government is left with no choice but to borrow to fund its pandemic measures amid criticisms about the Duterte administration’s ballooning debt.

Finance Secretary Carlos Dominguez said the government has to increase its borrowing program to cover for the budget gap that was incurred due to reduced revenue collections during the pandemic.

“Lower revenue collections and higher public health bill translate to budget deficits. To cover the budget gap, we had to borrow more. It is a necessity. This is the way the world works,” he said in a speech before the Financial Executives Institute of the Philippines.

In a recent forum hosted by the Freedom from Debt Coalition, former senator Wigberto Tañada said the next administration’s spending for social services and public infrastructure may be limited as it would need to increase the allocation to pay for debts amassed by the Duterte administration.

Tañada said the government has to set aside between 35 to 40 percent of its annual budget for debt servicing alone.

But Dominguez said the proportion of debt service to GDP for this year stands at 6.3 percent and is projected to go down to 5.9 percent by 2022. On the other hand, it is expected to rise to 6.6 percent by 2023 and jump to seven percent by 2024.

Likewise, Dominguez said debt-to-GDP ratio should land at 59.1 percent by the end of the year. However, it is anticipated to breach the international recommendation of 60 percent by 2022, at 60.8 percent.

Tañada, on the other hand, based his analysis on a budget ratio. Under the 2021 General Appropriations Act, the government increased its debt burden by over 21 percent to P560.2 billion, from P461 billion in the 2020 GAA.

The debt-to-GDP ratio compares what a country owes with what it produces. It reliably indicates a particular country’s ability to pay back its debts.

The government looks to expand its debt servicing for 2021 by over 86 percent to P1.79 trillion, from the record P962.46 billion it recorded last year. At this rate, debt servicing equates to nearly 40 percent of the P4.5-trillion budget for 2021.

According to the Bureau of the Treasury, the government widened its debt payments by around 22 percent to P623.59 billion from January to May, from P512.96 billion during the same period last year.

For 2021, the government mapped out a borrowing program of P3.02 trillion to bankroll its vaccine purchase and COVID containment efforts, expecting outstanding debt to reach an all-time high of P11.98 trillion.

The government is moving to revert the economy back to its pre-pandemic levels by speeding up the vaccination program and achieving herd immunity by the end of 2021.

The economy is estimated to grow by six to seven percent this year, and by seven to nine percent in 2022.

To attain this forecast, the government plans to vaccinate at least 70 percent of the population by December.

Dominguez said 70 million vaccine doses are expected in the third quarter, while 55 million doses are scheduled to arrive in the fourth quarter.