On Monday, among several routine releases of government financial data, there were two in particular that caught my attention. The first was the summary of debt service payments through the first nine months of the year. The second was the monthly report on the government’s budget balance.
Debt service is the payment of interest and principal on government bonds, treasury bills, outright loans, and other similar liabilities incurred by the government. Through the first three quarters of the year, the government has paid P337.119 billion to service its debt, an amount that is 28.3 percent less than the P470.14 billion it paid in the same period last year. As of the end of September, the outstanding government debt was P5.723 trillion.
In terms of the budget balance, which is simply the difference (positive or negative) between the revenue the government collects and what it spends in a given period, October’s accounts fell short by some P2.5 billion. That was, however, a smaller deficit than in September, when the shortfall was P5.2 billion. For the year, the budget deficit is P33.6 billion.
As part of the budget accounting, the government also provides figures for the “primary” budget, which excludes debt service in order to present a picture of the government’s income and expenses for actual projects, programs, and routine operations. For October, the government had a P14.2 billion primary surplus, bringing the cumulative total for the year-to-date to P240.6 billion.
On Tuesday, at the opening of whatever overdone festivities the country is staging in preparation for hosting the APEC meeting a little more than a year from now, President B.S. Aquino 3rd for the nth time was blathering on about the country’s “remarkable economic turnaround” under his watch, and if the above numbers are any indication, the turnaround he must be talking about is one in entirely the wrong direction.
To the casual observer, the figures may look unremarkable, but they tell a rather alarming story. It reveals itself in a comparison of the year-to-year changes in government spending, outstanding government debt, and debt service. The Aquino Administration ironically got off to a very good start. From the baseline of 2010 figures – the last Arroyo-era budget – spending, new debt, and debt payments all expanded at a relatively uniform rate in 2011; government spending increased 5.58 percent, debt grew by 4.94 percent, and debt service grew by 4.93 percent. While the value of what the new regime was spending money on is probably debatable, at that point it actually deserved some of the accolades it was assigning to itself for good fiscal management.
After 2011, however, fiscal management became reactionary and erratic. Stung by a drop in GDP growth, the government pumped up spending by nearly 19 percent in 2012, and allowed its outstanding debt to grow by 9.81 percent; at the same time, debt service slowed considerably, increasing by less than 1 percent. In 2013, the pace of spending growth slackened a bit to 16.26 percent and debt, likewise, grew 4.5 percent, but debt service plummeted by more than 23 percent. This year, government spending will increase by just a bit less than 3 percent – not quite keeping pace with inflation – while the government’s outstanding debt will grow by about 5.5 percent, partly due to a further reduction in debt service of 28 percent.
One immediate result of this pattern of spending and debt management is drive up the debt-to-GDP ratio, which up until now has been a favorable indicator cited as partial justification for raising the Philippines’ sovereign credit rating. At the end of 2011, it stood at 51 percent. In 2012 it had increased slightly to 51.5 percent, but dropped below the magic number of 50 percent in 2013 to settle at 49.2 percent. That sent Aquino and his merry men into a frenzy of self-congratulations, boasting that debt-to-GDP would be driven below 40 percent by 2016. That now seems extremely unlikely; at the end of this year, debt-to-GDP will be in the neighborhood of 63 percent, given the limited time left for the government to do anything about it (the ratio was 63.3 percent of GDP at the end of the third quarter).
It has taken some time, but the Aquino Administration’s failure to develop a fiscal program that involves anything more complicated than repeating the vague phrase “inclusive growth” ad nauseum appears to have finally caught up to it. “Remarkable turnaround?” Technically, yes; but it’s one the rest of us could live without.