October 14, 2024 | 12:00am
When Finance Secretary Ralph Recto was still the House deputy speaker, he said the proposed 2024 national budget of P5.767 trillion would translate to an average daily spending of P15.8 billion, of which only P11.7 billion would be supported by tax collections, with the balance to be covered by borrowings. Recto added that P4 billion would have to be borrowed “every 24 hours.”
The Bureau of Internal Revenue and the Bureau of Customs are projected to respectively collect only P8.3 billion and P2.7 billion daily, or a total of over P11 billion a day.
That’s a lot of money to borrow. But Recto told senators this year that the growing national government debt is nothing to worry about. He said it is commensurate with the nation’s economic growth. In other words, he is saying that the economy will grow faster than our debt, which may be wishful thinking.
Recto said we are borrowing P2.57 trillion this year. He described our borrowing costs as the most affordable and cost-effective. The government unveiled a P6.352-trillion budget for 2025, which marks an increase in public spending from 21.7 percent of GDP in 2024 to 21.9 percent in 2025. That means more borrowing.
BMI Country Risk & Industry Research (a Fitch Solutions company) observed that next year’s budget “will reverse the country’s fiscal consolidation efforts. Admittedly, the Philippines’ fiscal recovery has already fallen behind regional counterparts, and the latest budget certainly does not help this cause. As a result, public debt as a share of GDP will recede much slower. Policymakers are aiming to bring public debt down to 55.9 percent by 2028. We expect it to come in at 58.8 percent instead.”
BMI believes that trying to achieve our government’s aim to reduce public debt as a proportion of GDP to 55.9 percent by 2028 will require maintaining the deficit at 3.6 percent of GDP over the subsequent three years (2026–2028). “But this would necessitate spending cuts of almost 1.0 percentage point, based on our estimates, making it challenging for the current administration to balance its economic agenda. Instead, we forecast the budget shortfall to average 4.6 percent over the same period. Consequently, public debt will recede more slowly, eventually reaching 58.8 percent of GDP in 2028.”
A retired banker in one of my Viber groups commented: “The debt is statistically sustainable given these ratios. The real issue is the corruption reported by many, where only a fraction goes to the actual construction cost of infrastructure projects and significant amounts are diverted. The nominal peso deficit, outstanding debt and debt service are bloated, but there is no commensurate increase in the productive capacity of GDP. There’s nothing intrinsically wrong about fiscal debt as long as it results in a visible increase in economic capacity.”
Simply put, it is alright to get into debt if the money is used to increase our economy’s ability to grow.
For example, building a good airport will increase trade and tourism. Spending money to improve the nutrition of young children to prevent physical and mental stunting is a good investment in our future. Training our teachers, particularly in math and science, so our youth can cope with the increasingly competitive world of technology is a good investment in human capital. Also worthwhile is spending to provide better and more affordable healthcare for our people because that makes them more productive.
But it is estimated that corruption now eats up as much as 40 percent of the national budget. For infrastructure projects covered by pork barrel allocations, an estimate of as high as 70 percent ends up in the pockets of politicians, many of whom are also contractors. That means a congressman gets the contractor’s share of a project’s cost on top of what a congressman normally feels entitled to. That’s according to research done by Baguio Mayor Benjie Magalong.
Then there are ghost projects like flood control, a favorite of congressmen because it is difficult to audit. That’s probably close to 100-percent kupit, if the recurring floods are any indication.
Recall what happened with the PhilHealth funds? Funds allocated for vital infrastructure to cover our share of ODA-funded projects were reclassified by Congress to the unfunded portion of the budget so pork barrel allocations would be funded. This is embarrassing for our country, forcing the DOF to do a sweep of GOCC accounts for “idle” funds to finance our share in the cost of ODA-funded infrastructure projects.
The retired investment banker writing the Heneral Lunacy blog provides perspective on our pitiful reality:
“Our economic managers proudly announce our economy will grow by some six percent this year, allegedly among the fastest in the region. What is unannounced is that this so-called growth is coming not from private sector consumption and investment – the ideal drivers of growth – but from government spending. This excessive spending has contributed to wider deficits and inflation. The latter, in turn, has caused the BSP to keep interest rates high, which is hurting businesses, consumers’ mortgages and credit card debt and blowing out the government’s interest bill. Our annual debt obligations are now P878 billion, or 14 percent of the budget; higher than the budgets for health, social welfare, agriculture and tourism combined.”
We need to throw out the thieves who are wasting not just our tax money but also borrowed money that future generations must pay. The DOF cannot be forever borrowing funds that just end up in the pockets of politicians. The ability to scam the taxpayers gives running for public office a very high return on investment for politicians, explaining the current mad rush to run for the elections in May.
Yes, the technocrats are right that we have not reached our borrowing ceiling yet. But we have to make sure that the money we borrow helps our economy grow, not fatten the bank accounts of political dynasties.
Boo Chanco’s email address is [email protected]. Follow him on X @boochanco.
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