The Philippines is capable of paying off its growing number of loans that were mostly used to support the government’s response to the coronavirus disease 2019 (Covid-19) pandemic, Finance Secretary Carlos Dominguez 3rd assured the public on Wednesday.
During the Pre-State of the Nation Address (SONA) forum, Dominguez emphasized the importance of borrowing money from local and foreign sources, as the pandemic has affected state tax collections and public spending.
“Because our economy has slowed down during the Covid crisis, we have not been able to collect taxes as we had planned… and we have also been spending a lot of money on our Covid response,” Dominguez said, adding that the government had spent about P375 billion on that response alone.
“Because our collections are down and our expenses are up, we had to borrow money,” he said.
According to him, the government planned to raise the country’s debt to 50 percent of gross domestic product (GDP) this year from 39 percent in 2019 to take advantage of low interest rates.
The repayment of these loans, Dominguez said, would come from tax collections once people start working and reopen their businesses, which would eventually lead to economic recovery.
“The debt is very manageable, and it is affordable for us,” he said. “So I’d like to assure…the entire Filipino people that we have the capacity to borrow. We are borrowing at very low rates, and we have the capacity to pay these loans in the future.”
The Cabinet official also said the most important thing regarding debt payment was to make sure that debt was invested in projects that would yield a return.
So far, government funds are invested in programs aimed at safeguarding people’s health.
“Keeping them healthy will prepare them to get back to work and…be productive again.
And when our economy starts [becoming] productive, we would again achieve our high revenues from business activities [and] our efficient tax collections, and we will be able to pay” these debts, Dominguez said.
Credit ratings a big help
Analysts from the Union Bank of the Philippines (UnionBank), Rizal Commercial Banking Corp. (RCBC), Bank of the Philippine Islands (BPI) and ING Bank Manila echoed the Finance chief’s view.
UnionBank chief economist Ruben Carlo Asuncion said the Philippines’ current investment grade credit ratings “helped us in the first place…to borrow from different sources, and these ratings will also help us to repay and get lower rates than usual.”
RCBC chief economist Michael Ricafort emphasized that government borrowing “is still relatively acceptable compared to other countries,” especially in light of the pandemic, which required large stimulus spending.
BPI Vice President and lead economist Emilio Neri Jr. said debts could be paid as long as the economy remained strong.
“If the policy response from the fiscal side is too modest, we could risk slipping back to ‘sick man’ status, which could, in turn, make it difficult for the government to raise much-needed revenues to pay for all these obligations,” Neri explained.
According to ING senior economist Nicholas Antonio Mapa, the only way the government could repay its loans was to increase its income.
“As simplistic as that may be, that is one way we need to view our current predicament. Our economy has been grounded and we need to borrow in the meantime while our wings are clipped,” he said.
“But if we invest in the recovery of our GDP, income will accelerate (and, in turn, generate revenue), which will allow government to impose taxes in the future once economic activity [picks] up,” Mapa added.
As of July 1, the Department of Finance has secured $7.76 billion in budgetary support financing for the coronavirus response.
These include the Asian Development Bank’s $1.50-billion Covid-19 Active Response and Expenditures Support Program, $400-million Support to Capital Market Generated Infrastructure Financing (Subprogram 1) and $500-million Expanded Social Assistance Program; the World Bank’s $500-million Third Disaster Risk Management Development Policy Loan and $500-million Emergency Covid-19 Response Development Policy Loan; the Asian Infrastructure Investment Bank’s $750-million Covid-19 Active Response and Expenditure Support Program; and the Japan International Cooperating Agency’s $458.95-million Covid-19 Crisis Response Emergency Support Loan.