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Business

Ex-NEDA chief warns of fiscal crisis

Elijah Felice Rosales - The Philippine Star

MANILA, Philippines — The next administration, whose fiscal space will be restricted by a swelling budget deficit and national debt, could face a fiscal crisis and may have to return to public-private partnerships (PPPs) to complete big-ticket projects.

In an interview with The STAR, former socioeconomic planning secretary Ernesto Pernia said the incoming administration of Ferdinand Marcos Jr. should woo the private sector to take part in the infrastructure program through PPP agreements to fill in the funding gap.

“Infrastructure spending will be severely constrained and the PPP modality will be the only way out,” Pernia, who used to serve as an economic manager in the Duterte administration, said.

The national debt has spiked by 18 percent to a record P12.68 trillion as of March from P10.77 trillion a year ago on double-digit increases in both onshore and offshore borrowings.

The outstanding debt, when measured against gross domestic product (GDP), has swelled to a 17-year high of 63.5 percent. The international community observes a debt threshold of 60 percent of GDP, which means breaching that marker could raise worries about an economy’s capacity to pay.

“The debt-to-GDP ratio of 64 percent is way beyond the 60 percent red flag. The fiscal space is already quite narrow and is narrowing still,” Pernia said.

Gil Beltran, chief economist at the Department of Finance, also said the government may have to turn to private firms for financing in completing its infrastructure projects.

He said the government would experience a funding shortfall in the next few years as a result of the Mandanas ruling. As mandated by the Supreme Court, the government must expand the internal revenue share of localities starting this year when they receive a national tax allotment of P959.04 billion.

Unlike its predecessors, the Duterte administration favors acquiring foreign grants and loans, also known as official development assistance (ODA), to fund its big-ticket projects. It obtained $7.94 billion in ODA from July 2016 to December 2020, whereas the administrations of Gloria Macapagal Arroyo and the late Benigno Aquino III only got $6.06 billion and $5.64 billion, respectively.

PPP Center executive director Ferdinand Pecson, for his part, said the next administration has to assess the viability, including the liabilities, of the PPP contracts that it will enter into.

“The participation of the private (sector) in nation building is certainly needed, [but] please note that PPPs still expose the government to financial liabilities, both firm and contingent liabilities,” Pecson told The STAR.

“We should do a PPP if doing so is value for money, (and) it is important that PPP contracts are structured properly, are bid out competitively and that parties fulfill their contractual obligations,” he said.

Data provided by the PPP Center showed a decline in the number of projects undertaken by the government with the private sector in the past six years. Based on records, Duterte has signed just six PPPs since 2016, whereas Aquino approved a total of 17 during his term.

On the other hand, the value of PPPs under Duterte almost tripled to P778.86 billion, from P206.85 billion under Aquino, due to the concession agreement for the New Manila International Airport worth P735.6 billion.

Infrastructure spending amounted to P1.12 trillion, or 5.8 percent of GDP, last year, and is projected to stay above five percent of GDP until 2024.

Likewise, the government wants to bring down its budget deficit from 8.6 percent of GDP in 2021 to 7.7 percent in 2022, 6.1 percent in 2023 and 5.1 percent in 2024.

To do this, the government has to increase its revenue collection, which could require tax hikes, and narrow its spending program, which could hurt public services.

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