Philippines with record P12.97-trillion debt at end of Duterte admin —BTr

The Philippines' debt stood at P12.79 trillion when former President Rodrigo Duterte left office at the end of June, data released by the Bureau of the Treasury (BTr) showed.

The debt stock as of end-June is 2.4% or P296.057 billion higher than the P12.5-trillion debt recorded in May.

It also increased by 14.6% compared to the P11.166-trillion running debt pile as of end-June 2021.

Of the total debt stock during the period, 68.5% were sourced locally while the remaining 31.5% were sourced externally.

Finance Secretary Benjamin Diokno said that the debt levels seen during the Duterte administration will no longer be seen in the current regime.

President Ferdinand Marcos Jr. also vowed that the government would bring down the country’s debt to less than 60% debt-to-gross domestic product (GDP) ratio by 2025.

The BTr data comes as the country’s debt-to-gross domestic product (GDP) ratio — the size of the state’s debt relative to the size of the economy — stood at 63.5%, its highest in 17 years and well over the internationally recommended threshold of 60% of the economy.

The previous administration embarked on a borrowing spree to boost state coffers to respond to the COVID-19 pandemic —providing cash aids to vulnerable sectors, procuring vaccines to immunize the population, among others —as it implemented hard lockdowns to control the spread of the disease, causing economic activity to contract which affected state revenue collection.

Data from the Treasury showed that the Duterte administration’s net borrowings (composed of external and domestic) in 2017 - its first full year in office - stood at P758.929 billion and rose to P2.252 trillion in 2021.

In May, then Finance Secretary Carlos Dominguez III unveiled a fiscal consolidation plan aimed at raising an average of P284 billion annually for the next 10 years to pay the projected P3.2 trillion additional debt to be incurred due to the COVID-19 pandemic.

Dominguez’s fiscal consolidation plan involved implementing new taxes, deferring personal income tax reductions, and expanding the value-added tax base.

Diokno said that he was fine 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.

The Marcos administration is seeking to impose a tax on digital transactions which could generate P11.7 billion next year.

Domestic, foreign debt

The national government's outstanding domestic debt amounted to P8.77 trillion, up 1.2% from end-May’s level.

The Treasury said the increase in domestic debt was due to the net issuance of P96.30 billion in government securities and the P5.36 billion impact of local currency depreciation against the US dollar.

The BTr said that the Philippine peso depreciated against the US dollar from P52.412:$1 as of end-May to P54.970:$1 as of end-June.

Foreign debt totaled P4.02 trillion, up 5.1% month-on-month.

“For June 2022, the increment in external debt was attributed to the impact of local currency depreciation against the US dollar amounting to P186.94 billion and the net availment of external financing amounting to P43.18 billion; offsetting the P35.72 billion effect of net depreciation against the US dollar on third-currency denominated obligations,” the Treasury said.

Broken down by composition, commercial loans accounted for 55.4% of total external debt while multilateral and bilateral loans were at 34.2% and 10.5%, respectively, it said.

Sought for comment, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the Marcos administration needed to further increase tax revenues from existing tax laws through intensified collections or even come up with new taxes such as on digital transactions, among others to bring down debt levels below 60% of GDP.

“The government may also intensify fiscal discipline or even austerity measures on government spending through anti-corruption/anti-wastage/anti-leakage measures, as well as adopting an investment approach on government spending in terms of prioritization such as on education, health, infrastructure, among others that help further boost the economy’s productivity and long-term gains/returns for the coming generations,” Ricafort said.

The economist said that “new taxes and higher tax rates need to be fair, equitable, and progressive, especially targeted to those that can afford them or those from the higher income brackets or at least prevent adding burden to the poor, most vulnerable sectors, and/or those hit hard by the pandemic.” — DVM, GMA News