Diokno on taking over as Marcos’ Finance chief: I’ve seen the worst of the Philippines

Outgoing Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, the incoming Finance chief of President-elect Ferdinand Marcos Jr., is unperturbed by the daunting task of addressing the country’s debt situation to be left by the Duterte administration.

Speaking from his experience as a seasoned economic manager, having already served three presidents, Diokno said, "I’ve seen the worst of the Philippines."

“I think I have the benefit of having served the government for more than 30 years and I’ve seen all the crises. We’re in a better position now than before. I’ve seen debt-to-GDP ratio close to 100 [percent],” the BSP chief said in an interview on ANC.

Debt to gross national product (GNP) - gross domestic product (GDP) net of income from foreign investments - reached a peak of 95.2% in 1986, according to data from the National Bureau of Economic Research, a private research organization.

In the post-EDSA Revolution, the highest debt-to-GDP ratio was recorded at 71.6% in 2004, while the record-low was posted in 2019 at 39.6%.

As the successor of Finance Secretary Carlos Dominguez III, Diokno will be left with the task of managing the country’s fiscal position after the outgoing government incurred P3.2 trillion in additional debt following the COVID-19 pandemic, which could bring the debt level to P13.1 trillion by the end of 2022, above the original plan of P9.9 trillion.

The national government’s running debt stock climbed to a record high of P12.68 trillion as of end-March, bringing the debt-to-GDP ratio to 63.5% —the highest in 17 years and well above the internationally accepted threshold of 60%.

“I’m not worried about the level of the debt, that’s 63%. That’s easily manageable because as long as the economy can grow by 6% to 7%, which was our record before the crisis, we can easily outgrow our debt and most of our debt are domestic rather than foreign,” Diokno said.

On Wednesday, the Department of Finance (DOF) unveiled a fiscal consolidation plan aimed at raising an average of P284 billion annually for the next 10 years to pay off the P3.2 trillion in additional debt incurred due to the pandemic.

The fiscal consolidation plan involves implementing new taxes, deferring personal income tax reductions, and expanding the value added tax base.

Diokno earlier said he will look into the proposed fiscal consolidation plan, but said “the focus should really be on tax administration and we need a lot of money to number one, continue our growth momentum, and two, to service our higher level of public debt.”

The outgoing BSP chief said he is okay with the last two tax reform packages to be left by the Duterte administration, namely the tax packages on real property valuation and passive income and financial taxes.

“Other than that, we should stop first looking at tax reform… we are happy with the present tax structure,” Diokno said.

Marcos on Thursday announced that Diokno would be the Finance secretary under his administration.

Diokno said he intends to retain most of the undersecretaries and National Treasurer Rosalia “Lea” De Leon.

“If we grow at 6% to 7% that solves our tax revenue problem. That will solve our deficit problem. That will solve our debt problem. That will serve our concern for poverty reduction,” he said.

“By sustaining growth, you solve your tax problem because when the economy is growing the tax collection is also growing. The higher the growth, the higher the tax collection,” he added.

The Philippine economy as measured by GDP grew by 8.3% in the first quarter of the year, a reversal from the 3.8% contraction recorded in the same period in 2021.

The incumbent BSP governor will cut short his term which was set to end in July 2023. Diokno took over as central bank chief in March 2019, when the post was vacated by late Governor Nestor Espenilla Jr., who succumbed to cancer.

Prior to his appointment to the BSP, Diokno served as secretary of the Department of Budget and Management (DBM) under the Duterte administration for the second time.

He first served as DBM secretary under the Estrada administration and also Budget undersecretary from 1986 to 1991 under then-President Corazon Aquino. —AOL/VBL, GMA News