Debt burden: How long can the PHL carry that weight?

• Published date: 27 August 2020
• Publication title: Business Mirror

FIVE decades since the The Beatles advised people 'to carry that weight' in 1969, the Philippines's debt burden stood at P7.73 trillion ($159.34 billion) as of end-2019. The dollar amount was equivalent to the budget deficit the US addressed nearly two decades ago.

While the Fab Four wasn't referring to anything, much more debt, the burden of borrowings were carried long and will be carried long according to people BusinessMirror talked to amid and even after the Covid-19 pandemic and the Duterte administration.

Nonetheless, the latter is credited with the feat of bringing down the debt as a share of the economy to a historic low of 39.6 percent. Now it is bracing for a much higher debt-to-GDP (gross domestic product) ratio this year at 53.91 percent; a level the country has not seen in more than a decade. The ratio-how an economy can pay off debts-is even expected to surge to 58.28 percent and 60.04 percent of GDP for 2021 and 2022, respectively.

By the end of this year, the national government expects its outstanding debt to reach P10.16 trillion, up by 31.42 percent from last year's amount.

Increasing debt

FOR the first half of the year, the national government's outstanding debt has breached the P9-trillion mark as it surged by 15.1 percent from a year ago as the country borrowed more to fund its spending measures against the Covid-19 pandemic.

The government's gross borrowings have also surged past P1.7 trillion for the same period, already surpassing the state's original P1.4-trillion borrowing program for this year.

The latest Budget of Expenditures and Sources of Financing document released by the Department of Budget and Management this week shows a stark reality. The paper said the national government's debt service expenditure this year is seen to reach a total of P1.005 trillion, up by 19.33 percent from last year's actual total debt service of P842.450 billion. These figures already include interest payments and principal amortization.

Government's debt service bill in the January-to-June period this year jumped by 42.07 percent to P547.347 billion from the previous year's P385.254 billion.

And according to former Labor Undersecretary Rene E. Ofreneo, these figures indicate that the country continues to be mired in such a debt crisis.

No let-up

OFRENEO, currently president of the nongovernment Freedom from Debt Coalition, believes the Philippines is already in a debt crisis since the 1980s.

'In other words, the debt crisis never left us,' Ofreneo told the BusinessMirror, where he is also a columnist, in an interview. 'One clear indication of a debt crisis is that the biggest expenditure on the budget is always on debt service.'

Ofreneo, author of the 1984 seminal paper 'The Philippines: Debt Crisis and the Politics of Succession,' expressed alarm over the 'rapid contraction of the economy.' According to him, this year's contraction would take its toll on the country's debt management. Ofreneo also warns that the economy at a historic low of 16.5 percent in the second quarter of the year marks it officially in a recession could even worsen relative to the headwinds brought by the pandemic.

'We have a rising debt-to-GDP ratio and we also have indications of declining or imploding economy, rising unemployment,' he told the BusinessMirror. 'And so, in the end, the capacity of the economy to grow and to manage the debt is worrisome.'

Unemployment rate in April rose to a record-high 17.7 percent from 5.1 percent in the same period last year, based on the Labor Force Survey conducted by the Philippine Statistics Authority. Underemployment rate also rose to 18.9 percent from 13.4 percent last year.

Crisis character

IBON Foundation Executive Director Jose Enrique A. Africa offers a dissenting voice: the country is not yet heading into a debt crisis.

However, Africa pointed out the basic nature of a debt crisis is still the same now as in the 1980s, which he said is mostly a 'balance of payments and foreign exchange crisis.'

Africa said in an e-mail to the BusinessMirror: 'In our view, an immediate debt crisis isn't at hand but the country's vulnerability is increasing. The main problems are: rapidly increasing borrowing, which isn't being spent as well as it could be to restore the economy; consequently diminished prospects for growth; and weak revenue generation from over-relying on consumption taxes and avoiding higher direct taxes on income and wealth.'

He explained that some specific conditions today and the 1980s differ. Africa cited the level of the country's foreign debt, which has fallen to just around 20 percent to 22 percent of GDP today from 60 percent to 100 percent of GDP in the early 1980s.

Labor's contribution

AFRICA added that 'meanwhile, the foreign exchange constraint has been considerably eased by huge overseas remittances.'

He noted that remittances have grown considerably from 1.5 percent to 3 percent of GDP in the early 1980s to 8 percent to 10 percent in the last decade.

According to Africa, remittances have also been the biggest factor in the rising Gross...