IT is no secret that the Duterte administration intends to spend P8 trillion to P9 trillion on infrastructure buildup during its six-year term until 2022. What is misconstrued about the plan is that foreign borrowings, particularly from China, will fund the whole program, thus placing the Philippines precipitously closer to getting caught in a debt trap.
Budget Secretary Benjamin Diokno has been clarifying the issue, practically since Day One, when the program was launched in July last year and billed by the administration’s economic managers as the golden age of infrastructure: the infrastructure buildup will be funded by a mix of tax revenue, foreign and domestic borrowings and low-cost official development assistance or ODA.
The enormous amount of Chinese loans and grants brought home by President Rodrigo Duterte from his latest visit to China last week came with a load of warnings from several quarters, the strongest from the Western front, of a potential debt trap.
What is fundamentally wrong with the warnings are their main premise that the ambitious infrastructure program of the Duterte regime is to be funded solely by China’s largesse.
But even if the Philippines borrows the whole amount, which adds up to around 20 percent of annual economic output, it would not saddle the annual gross domestic product or GDP. The Philippine economy, as measured by the GDP, is more than P8.2 trillion a year. The Philippine Statistics Authority has valued the GDP at P2.009 trillion in the first quarter of 2017.
Still, the anxiety over a debt trap is not without basis as nobody with a brain would expect the Duterte administration’s Asia pivot to come without a price. Turning to China after more than a century of love-hate relationship with America is not as easy as a hipbone surgery.
On the other hand, deficit spending on infrastructure will still be funded by 20 percent foreign borrowing and 80 percent domestic debt. That makes falling into a debt trap, at this point, a possibility even if not to the extent of funding the whole infrastructure program with debt.
Infrastructure projects like airports and railways are supposed to pay for the debts incurred once completed and operational, and farm-to- market roads will further fan economic growth.
What is more likely to prey on the infrastructure program, now rebooted as the Build, Build, Build component of Dutertenomics, is corruption, a likely scenario that prompted Sen. Panfilo Lacson to call for nationwide vigilance beyond the domain of the legislature in safeguarding the infrastructure buildup.
According to the senator who gave a speech during a forum hosted by the Rotary Club of Makati on Friday, corrupt government officials demand a 20 percent commission from contractors. And that is the minimum rate of graft in contractual obligations involving government projects.
The implication is mathematically simple as 20 percent of P8 trillion to P9 trillion is P1.6 trillion to P1.8 trillion that can be sliced off the total infrastructure spending pie by corrupt government officials.
That is a more compelling argument regarding the Build, Build, Build program of the administration, considering that the Philippines has never reneged on its sovereign obligations to foreign and domestic creditors.
Data from the International Monetary Fund showed the Philippines has been able to handle and manage its foreign debt quite well and even brought it down to $30.546 billion by the end of 2016, from $30.812 billion in 2015 and $31.488 billion in 2014.
The borrowing strategy adopted by the Philippine government is sound and sustainable in fiscal terms, Diokno explained. From a debt-to-GDP ratio of 42 percent last year, the government intends to bring down that ratio to 35 percent by 2022.
Corruption or debt trap? These are the things that can taint if not derail an otherwise noble idea of a golden age of infrastructure or Build, Build, Build and it is up to the administration and the lawmakers to make sure the infrastructure buildup benefits Filipinos, not the pockets of foreign creditors and corrupt government officials.