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Saturday, September 24, 2022

The debt we never wanted but badly needed

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Jecko Tadeo
Jerico B. Tadeo has expertise in Management, Political Economy, Market, and Industry Dynamics and Forecasting. He is currently working as an instructor and a market consultant.

Today, the government dominantly relies on debts to address its operations and responses towards the very unforgiving health and economic crises we’re facing. It is almost six months since the government took this pandemic as a serious matter–late probably, but we can’t point blames anymore; effective planning, fact-based decision-making, on-point implementation and continuous monitoring of activities and programs are some of the non-negotiable parts of our solution setting.  All of these need fuel and there goes the reason for this walloping debt we have and will still incur in the coming months or years. 

Generally, the government has four means to have funds; taxes, income from government-owned and controlled corporations (GOCCs), grants/aids from the local and international community, and debt through loans from domestic and foreign markets. 

The pandemic brought the two options stiffed as business, work, and economy in general fettered for about 75% at the least due to lockdowns, leaving grants/aids and debt as viable options to have funds. Given the current situation, grants/aids are generally not sustainable but debt is. Last June 2020, the country’s outstanding debt reached to 9.05 trillion pesos, the highest in terms of percentage change points for more than 25 years.

According to the Bureau of Treasury, it was an increase from 8.89 trillion pesos in May 2020 and a percentage increase comparison of 15.10% in June 2019. The loans from the domestic market comprise the largest portion of the government debt for about 68% through the sales of T-bills and bonds and the rest were from the foreign markets. As far as fiscal policy is concerned, this is a good strategy for the government to hamper any possible foreign exchange risks. 

Philippine Debt to GDP ratio from Businessworld

Economically speaking, we are in a good position for the debt we are incurring. Even if we are to breach 15 trillion pesos debt, it is still on the tolerable zone as reflected by our debt-to-GDP ratio. In fact, the Philippines has a good credit rating from various loan-payment and efficiency rating organizations internationally.  It is a general misconception that our country can only pay our debt through print-money.

The Bangko Sentral ng Pilipinas (BSP) as an economic arm of our country can buy government debts and support the revenue gaps and the deficits of the fiscal side. As a matter of fact, the BSP already bought $6 Billion of government debt last March 2020 to augment the revenue gap of the current fiscal year. The Federal Bank, European Central Bank, and other ASEAN Central Banks are currently doing the same. We can pay. No question about that, as long as it is on our manageable and acceptable economic capacity. But we can’t deny the consequences of having debt like this, a shared burden for everyone. Possible funds for social services may be diverted somehow on debt payment or servicing in the future budgets. 

Shouldn’t we be more concerned about how this debt will be used rather than focusing on the figures? Shouldn’t we be more vigilant where this debt will go rather than focusing on the amount itself? The money from this means should go where it should be–healthcare services, social support operations, and economic-rebound programs among others to address the pressing crises we are facing today. 

Our economy is currently in recession and is suffering. As early as last week of March 2020, I have forecasted an aggregate output growth of 1.5 to 2.0% in the second quarter of this year and my forecast models show continuous slow phasing growth until the 2nd quarter of 2021, ceteris paribus.

“The amount of debt our country we have today may be unwanted but badly needed.”

The debt we incurred and still incurring is because of health and socioeconomic complications brought by the CoVID-19 pandemic. It is very important that there should be transparency in debt utilization. Moreover, the public should know in detail how it was allocated and spent because one way or the other, we are held liable for what our country had borrowed.

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