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By Chino S. Leyco, Reporter
WITH the national debt standing at P3.798
trillion, each Filipino man, woman and child owes the creditors of
the national government at least P42,656.45.
This is despite the Philippine economy’s
having prospered dramatically, according to Arroyo administration
statistics, these past years—with 2007 as the best year in more
than two decades for its faster-than-expected Gross Domestic Product
(GDP) growth rate of 7.1 percent. (The GDP is the total market
value of all goods and services produced within the country in a
year.)
The good news is that the latest figures show
that our national debt now is P116 billion less than last year’s.
The latest report of the Bureau of Treasury (BTr)
indicates that Filipinos are still miles away from zero-debt heaven.
The national government’s January to October 2007 outstanding
financial obligations was P3.798 trillion.
The astonishing fact is that the P3.798-trillion
January-October 2007 national debt is P34-billion less than the
January-September debt of P3.831 trillion. This means the Arroyo
administration paid P34 billion or almost 1 percent of the debt in
just one month.
The Arroyo administration appears to be biggest
borrower compared with the previous administrations.
After the historic EDSA 2 Revolution that ousted
then-President Joseph Estrada, the NG debt grew from only P2.385
trillion in 2001 to P3.785 trillion.
The country’s national debt totals in the
1990s have only been in the billions. From 1990 to last
October, there has been a P3.2 trillion growth.
More domestic than foreign borrowings
Of the total P3.798-trillion government debt at
end-October last year, P2.209 trillion came from domestic lenders.
The remaining P1.589 trillion from offshore creditors includes
foreign-government granted loans.
As a percentage of the GDP, NG debt has
significantly declined in the past four years.
In 2004, total debt was 72.6 percent of the
country’s economy (or the GDP). In the third quarter of
2007, it was only 54.3 percent of the GDP.
Uses of the debt
The Philippines borrows heavily to pay off
maturing foreign and domestic obligations and at the same time to
finance the budget deficit.
Documents obtained from the Department of
Finance show that NG debt is seen to reach P3.947 trillion in 2008,
or P17 billion higher than the programmed P3.93 trillion last year.
The Cabinet-level Development Budget
Coordination Committee (DBCC) approved a borrowing plan of P346.18
billion from both foreign and domestic creditors, or 12 percent
lower than the programmed borrowing of P394.01 billion in 2007.
The total amount to be borrowed this
year—about P328.4 billion—is to be used to pay off maturing
foreign and domestic obligations, while P17.7 billion would be used
to finance the deficit.
To enhance government’s fiscal position, the
Finance department implemented debt management measures. It
increased revenue collection targets for the Bureaus of Internal
Revenue (BIR) and the Bureau of Customs (BOC).
Finance also increased its privatization program
(sale of government assets) in 2007.
The government aimed to raise the tax effort to
0.8 percent of GDP, or approximately P47.1 billion last year.
But Customs missed its target of P228 billion, collecting only
P210.6 billion in revenues.
The BIR, whose final data are not yet available
at this writing, most likely also missed its P765.9 target in 2007.
That target is 17.5 percent higher than 2006’s actual goal of
P651.9 billion. But the Bureau had earlier said it was likely to
meet its P64.9 billion collection goal for December 2007.
Privatization proceeds
Government proceeds from the recent sale of
big-ticket items, meanwhile, have boosted revenue collection in the
first 11 months last year.
The sale of PNOC-Energy Development Corp.
boosted the Philippines government budget surplus by P54.1 billion
in November and put the country on track for a 2007 balanced budget.
Total privatization last year reached P90.6
billion, P47 billion of the amount came from the PNOC-EDC. And this
year, the privatization programmed is P30 billion, half of which
will come from the sale of the Food Terminal Inc. property in Taguig,
worth P15 billion.
Moody’s Investors Service and the
International Monetary Fund (IMF) early this month urged the
government not to rely on privatization to increase its annual
revenue but instead focus on how to increase tax and duty
collections.
“We agree, that’s why we’re doing
something about it, we’re moving heaven and earth to get the
efficiencies, there’s no question about it,” Finance
Undersecretary Gil S. Beltran told The Times.
Relatively high Philippine government debts
remain a concern for Moody’s, adding that the Philippines has not
reduced its debt enough to make the ratings agency give the country
a better grade.
Moody’s visited the Philippine on January 9 to
13 this year before it came up with a new credit rating for the
country.
The international ratings agency said that the
country’s public finances is still vulnerable to external shocks,
despite advances made in fiscal consolidation these past recent
years.
The Economist Intelligence Unit also said
relying on privatization receipts is hardly a good long-term
strategy for the government, since once an asset has been sold it
will provide no further income.
More efficient collection by the BOC and BIR
“the government’s favored option” is likely to prove
insufficient to make a significant difference.
RP debt maturity
Domestic debt was 41.1 percent of GDP fours
years ago, but as of September last year it has already dropped by
6.9 basis points to 34.2 percent of the economy. For foreign debt,
however, the 2004 obligation was 37.2 percent, then it went down to
only 25.2 percent in the third quarter of 2007.
While the above impressively went down, in the
past years short term loans, those with 1 to 3 year maturity
periods, spiked by P22.4 billion to P618.57 billion at end-September
2007 from P596.18 billion in 2004.
Of the total maturing loans, long-term foreign
debt grew by P7.3 billion from P28.86 billion four years ago to
P36.13 billion in September last year. On the positive side, the
country’s medium term offshore debt has gone down to the zero
level, from P3.32 billion in 2004.
In terms of debt maturity, the Economist
Intelligence Unit said majority of the Philippine debt are long-term
obligations, or with 10 to 25 year maturity periods, which totaled
P2.323 trillion in September 2007, or P91 billion lower compared
with P2.232 trillion four years ago.
Medium term debt, or debts with 5 to 7 year of
maturity, however, was P890 billion in 2007. It was P983 billion in
2004.
The decrease in the country’s foreign debt at
end-September 2007 was due to P1-billion net repayments of the
government and the P42 billion appreciation of the peso against the
US dollar last year.
But because of the weakened US dollar,
economists have advised the DOF that its programmed borrowing this
year be purely domestic. This will help Filipinos who earn in
dollars, like the OFWs.
But Finance Undersecretary and acting national
treasurer Roberto B. Tan, said the national government cannot make
its borrowings 100-percent domestic and ignore foreign creditors
this year.
“Definitely, we need to have presence in the
market, you can’t just leave suddenly. It’s part of your
presence and correctly managing your exposure. Second, it is also
very efficient, because we have raised money in a matter of
hours,” Tan said.
The Finance department, Tan said, tries to
balance foreign loans using the strategy that will keep the peso
from appreciating rapidly.
Due to the “unhealthy” strength of the local
currency, Finance Secretary Margarito B. Teves is likely cut RP
foreign borrowings further this year. He said the government could
further trim the share of foreign borrowings from the current 70:30
mix to 75:25 in favor of the domestic banks.
The government has been increasing its
borrowings from the domestic market to take advantage of low
interest rates and to minimize foreign exchange risks attendant to
borrowing abroad.
The Monetary Board (MB) has given the National
Government the green light to borrow abroad through the sale of $500
million in bonds or IOUs. The bond offer, which completes the
country’s entire foreign commercial borrowing program this year,
is scheduled in the first quarter.
But Undersecretary Tan said government is not
rushing to borrow abroad despite a green light from the MB, adding
they are monitoring the market but are not on a hurry to issue the
sovereign bond.
“We are not in dire need. We’ll find out
when is the best time to tap the market. We are just monitoring the
market,” he said.
DOF plans to trim the ratio of the country’s
debt stock to the domestic economy to P3.948 trillion, or 54.2
percent of gross domestic product this year. It would be done
through a more efficient management of its debt portfolio. The
government had projected its indebtedness to have ended at P3.935
trillion last year.
The government sees the nominal GDP growing by
10.2 percent to P7.284 trillion this year from P6.609 trillion in
2007.
Interest rates
The country’s second-largest lender, Bank of
the Philippines Islands (BPI), said interest rates may still “rise
a bit given the rising inflation.”
The bank said the average consumer price
increase this year may reach the high end of the BSP’s target this
year. The lender set its forecast at 3.8 percent this year from 2.8
percent last year citing high world oil prices.
The BSP cut interest rates by 25 basis points
before end-2007 as the inflation outlook continues to provide scope
for further monetary policy easing.
Overnight borrowing or reverse repurchase (RRP)
stood at 5.25 percent and overnight lending reached 7.25 percent for
the overnight lending or repurchase (RP) facility.
The interest rates on RRPs and RPs terms and
special deposit accounts were also reduced accordingly.
On the expenditure side, the Economist
Intelligence Unit said lower interest rates will help to keep debt
interest payments under control, thereby limiting overall spending
growth. However, government plans to boost spending on
infrastructure and poverty-alleviation measures. This will
push up overall government expenditure.
2008 balanced budget eyed
According to the Congressional Planning and
Budget Department (CPBD) huge tax leakages will prevent the
Philippines from balancing its budget this year as planned.
In its recent report, the House of
Representatives think tank said it expects revenue collection to
fall short by P13 billion to P1.222 billion this year. This means
the government will incur a P13-billion budget deficit.
“CPBD estimates that given the current
collection efficiency, revenue targets for 2008, and consequently a
balanced budget, will not be met. Low fiscal assumptions could
render tax-collecting agencies to the complacent in improving their
performance,” the think tank said.
Improvements in tax administration become more
urgent in line with the higher economic growth forecast of 6.1
percent to 6.8 percent next year, the CPBD said.
For its part, the think tank sees the economy,
as measured by the country’s GDP, to grow at a slower 5.6 percent
to 6 percent next year due to lower revenues, a slowdown in
investments with 1.1 percent to 2.2 percent growth, and government
spending of 4.6 percent to 5.5 percent.
The World Bank, meanwhile, said the
Philippines’ revenue shortfall may prevent the government from
attaining its balanced-budget goal this year.
“A shortfall in targeted tax revenue in 2007,
unless rectified, could undermine official aspirations to strengthen
infrastructure and eliminate the national government deficit in
2008,” the multilateral lender said in its East Asia Update
report.
President Gloria Arroyo said the government was
looking at a funding gap of P50 billion last year, lower than the
P63-billion revenue shortfall programmed for the period.
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