National debt soars to record P12.68 trillion

Pressure on next admin to raise taxes

MANILA, Philippines — The next administration will find itself running on tight finances and may be forced to raise taxes as it has to undertake fiscal consolidation to repay a national debt worth nearly P13 trillion.

In interviews with The STAR, economists warned that the incoming government would face financial burden in its six-year term due to the tight space carried over from the Duterte administration.

The Bureau of the Treasury yesterday said the outstanding debt of the Philippines has risen by 18 percent to a record P12.68 trillion as of March from P10.77 trillion a year ago.

On a yearly basis, domestic debt grew by 15 percent to P8.87 trillion from P7.74 trillion. On the other hand, external obligations ballooned by 26 percent to P3.81 trillion from P3.03 trillion.

For March alone, the Treasury said P586.29 billion in new debts were added to the outstanding account. During the month, the government borrowed a net amount of P455.55 billion from the domestic market through the issuance of retail Treasury bonds to small-scale investors.

Further, the government added a net volume of P130.84 billion to the foreign account due to the latest auction of global bonds worth P122.69 billion, and the peso’s depreciation against the US dollar valued at P37.31 billion.

According to the Treasury, the increase in external debt was somewhat weathered by the peso’s appreciation against other currencies amounting to P29.17 billion.

To pay off the debt stock, Ateneo de Manila University economics professor Leonardo Lanzona said the economic output – measured as gross domestic product (GDP) – should outgrow public debt in the next few years.

“The first item in the agenda of the next president is to design an economic program that should produce enough growth to pay for our debt. This could mean even larger debt, but the program should be credible enough to assure the [financing] agencies that we can eventually pay for our debts,” Lanzona said.

Lanzona said the next administration should look at Malaysia’s policy to expand its palm oil output, taking advantage of the supply crunch for petroleum products caused by the war in Ukraine. He said a similar program is needed to raise additional income for debt payments.

“The idea is that believable steps should be undertaken and that they can develop enough economies of scale economies for production,” Lanzona said.

De La Salle University economics professor Maria Ella Oplas said the government should boost the performance of dollar earners like the electronics industry to generate the revenues required in sustaining programs and projects.

“The incoming president should revive our competitive industries like semiconductor so that the government can finance its activities without relying that much on borrowings,” Oplas said.

On the fiscal end, Lanzona said the next administration should consider implementing a wealth tax on billionaires to raise additional resources for economic recovery. He pointed out this could be the only way to widen income sources and cut dependence on borrowings.

In a study, Oxfam said the Philippines stands to gain $6.3 billion a year by slapping a tax of two percent on wealth above $5 million, three percent on wealth over $50 million and five percent on wealth beyond $1 billion. However, economic managers have warned that charging billionaires with a wealth tax could lead to tax avoidance and, worse, capital flight.

The government expects the national debt to reach an all-time high of P13.42 trillion by the end of  this year, comprising P9.4 trillion in domestic debt and P4.02 trillion in external debt.

The debt pile spiked by 20 percent to P11.73 trillion last year from P9.8 trillion in 2020, pushing the debt-to-GDP ratio to 16-year high of 60.5 percent.

The international community observes a debt threshold of 60 percent of GDP, and going beyond that marker could raise worries on the capacity of an economy to repay its obligations.