Austerity

Marcos Junior delivers his first State of the Nation address today as president of a nation with close to P13 trillion in public debt, an annual budget of P5 trillion, and total revenue collections (BIR and Customs) of P2.7 trillion.

Our debt service last year was P1.2 trillion and debt service gets priority for payment. If that’s our level of collection this year, only P1.5 trillion will be available to cover a budget of P5 trillion.

Unlike in the past, the National Treasury cannot just increase borrowings because Duterte already overborrowed. We are slightly above the level of borrowings as a percentage of GDP that credit rating agencies consider prudent. We can lose our prime credit rating by borrowing more.

Why is our investor grade credit rating important? Losing it increases the cost of foreign borrowings even for private sector businesses that are the engine of our economy. That makes life more difficult for everyone.

Luckily, most of the national debt is domestic and payable in pesos. We must pay more pesos for our foreign debt because of the depreciated pesos.

With inflation raging, the cost of running the government is going up. Not easy to raise revenue collections as businesses adjust to a tougher business environment. Raising taxes, as suggested by DOF, will not raise enough and is dangerous given current public temperament.

Any padre de familia confronted with the realities of a large debt, a budget whose size cannot be supported by expected income, complicated by higher living expenses thanks to inflation and peso depreciation, must cut expenses.

Faced with such a reality, Junior must call for austerity. He must order his subordinates to reconfigure their expenditures based on the reality that there will not be enough funds to cover budget allocations.

Finance Secretary Ben Diokno may say that the macroeconomic figures are still good and prospects for higher GDP growth rate this year are still on the table even if still uncertain.

That’s encouraging to know, except that a half full glass is also half empty and leaves little margin for error or abuse or a major calamity that happens yearly. The COVID pandemic isn’t over and we may have to spend for a new round of vaccinations.

Inflation is a major problem that Junior must now recognize. Rising inflation, specially for food and energy, is politically dangerous. If he still doubts PSA’s inflation number, here’s the Monetary Board’s view on inflation as expressed in their meeting last week:

“Headline inflation rose further to 5.4 percent year-on-year in May 2022, the highest recorded inflation since December 2018, from 4.9 percent in April 2022 and 4.1 percent in May 2021…

“The rise in food inflation reflects the spillover effects of higher energy costs… Transport inflation likewise remained at double-digit rates due to higher international oil prices that led to fuel price hikes, which more than offset the modest decline in electricity rates and LPG prices.

“In addition, the number of CPI items above threshold has further increased suggesting that price pressures are broadening…

“Inflation outlook • The latest baseline forecasts indicate that inflation could settle above the government’s target range of three percent ± one ppt at five percent for 2022 and 4.2 percent for 2023.

“Meanwhile, inflation could decelerate to within the target range at 3.3 percent for 2024.

“The upward adjustment in the forecasts for 2022 and 2023 was mainly driven by the higher-than expected inflation outturn in May and higher nowcast for June, the higher assumption for global oil and non-oil prices, the approved provisional jeepney fare hike, and the depreciation of the peso.”

So, it is likely the rest of the year and all of next year could be rough. We can hope 2024 will be better.

Junior’s job as president is to rally our people, and most specially the government, to support an austerity program. Bureaucrats cannot spend as if everything is normal unless they are dealing with urgent projects like food security.

Even members of Congress must drastically cut their expenses to show they share the sacrifices our people have no choice but to face. Government officials must not spend extravagantly and uselessly.

For example… Is a new Senate building really necessary? But construction has started. So, can’t the government sell that to the private sector? If at all, we can rent it when it is done, assuming we still have a Senate by then.

Should we still have Libreng Sakay? That was primarily a pandemic response and its need may have passed. What commuters need is not so much a free ride, but an assured ride with enough buses available at all times of the day and night.

Food security is important. So how do we make sure there will be enough rice for urban workers? I remember the time when corporations were tasked with providing a few sacks of rice for their employees monthly.

The idea was to get the corporations to contract the growing of rice at an agreed amount and quantity that gives the farmer guaranteed income and assured market. It removes the power of traders to exploit farmers.

Some corporations may opt to do corporate farming, which is also more efficient. The government’s role is to make sure inputs from seeds to fertilizer and irrigation are available at reasonable costs.

As for the malnourished chickens that Jollibee and McDonald’s do not want to buy, the government must help make reasonably priced chicken feed available. If local corn production is not enough, importation should temporarily be allowed. But every assistance to make local corn farmers able to supply domestic demand must be given.

There are other things. Maybe it was not right to spend P100 million to refurbish the Batasan session hall for Junior’s SONA. I read that Junior is planning some foreign trips. Maybe the entourage should be severely limited.

People want Junior to tell them in his SONA today how we will have enough money to survive the next few years. We are not a rich country pretending to be poor. Now, we are just poor trying to survive the hard times.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco