LESS than two months before a new coterie of elected officials latch on to the reins of bureaucracy, the Bureau of the Treasury reported last week that the government incurred a new record-high level of debt.
Latest data showed the national government has so far incurred an outstanding debt of P12.68 trillion as of end-March, higher by P586.29 billion or 4.8 percent from P12.09 trillion as of end-February this year.
To address this, economists said it is crucial for the next administration to ensure the economy will grow faster than its pace in accumulating debt.
ING Bank Senior Economist Nicholas Antonio T. Mapa explained to the BusinessMirror the next administration should be discerning when it comes to its choice of projects and programs.
“Thus, it is imperative that the new administration focuses on projects that would yield revenue streams and refrain from populist programs that may be popular but ultimately lead to increased debt,” Mapa’s text message to the BusinessMirror read.
Moreover, Mapa said the next president should prioritize fiscal consolidation as he warned that current debt-to-gross domestic product ratio–at 60.5 percent in 2021—“leaves the Philippines susceptible to a credit rating downgrade.”
Policymakers should also watch out for several headwinds for this year and next year, including accelerating inflation and surging borrowing costs, he added.
Mapa explained both “can dampen growth and revenue collection while also heightening the need for fiscal support, which in turn could lead to higher debt accumulation.”
Focus on chips
DE La Salle University Economics Professor Maria Ella C. Oplas said the next administration can stimulate robust economic growth by focusing on three industries: semiconductor, tourism and service.
According to Oplas, this move will help the economy grow “slowly but hopefully surely.”
“[Focus on] semicon to capture a portion of the outflow in China and, hopefully, contribute to addressing the shortage in chips we are experiencing,” Oplas said.
She also recommended the full opening of the economy for the tourism and service sector.
“Let [the] private sector lead. We already have the Create [Corporate Recovery and Tax Incentives for Enterprises] and ‘Build, Build, Build,’ so we should capitalize on that and encourage more investors in the country,” Oplas said.
Oplas also cautions the new administration in imposing new taxes adding that doing so would further fuel the pace of inflation amid spiraling food and fuel prices. Last week, the Philippine Statistics Authority reported that April inflation at 4.9 percent was the highest since the 5.2 percent recorded in December 2018.
“As a response, government will borrow again. It’s a never-ending cycle,” she said.
Instead of new taxes, Oplas said a better option for government chooses to improve its efficiency in tax collection and attract new investments that will lead to an increase in revenues.
BUT IBON Foundation Inc. Executive Director Jose Enrique A. Africa doubts the incoming administration’s ability to address debt.
Africa said it would be “very unlikely” for government to reduce its stock of debt for some time to come as it needs resources for its upkeep and for social and economic development.
Nonetheless, he said there are measures the next administration can take to make its rising debt stock more manageable. These include rolling out a large fiscal stimulus to revive economic activity and help raise revenues.
“Revenue generation is actually being suppressed, people’s sufferings extended and small businesses hobbled by the current administration’s fiscal conservatism. Fiscal tightening to please credit ratings agencies is self-defeating,” he said.
“This stimulus can also be made easier if the next administration negotiates a standstill on debt repayments, both principal and interest, at least with development agencies and creditor governments,” Africa added.
He also reiterated the need for government to craft a well-designed wealth tax to raise P470 billion in annual revenues that could abet narrowing a fiscal deficit, lessen borrowings and make debt servicing easier.
Furthermore, Africa also warned against imposing consumption taxes.
“It should also avoid the temptation to resort to consumption taxes that are unduly burdensome for ordinary Filipinos,” he said.
Africa added that government should also take steps to reverse the regressive trends in the tax system under the Tax Reform for Acceleration and Inclusion, or Train, Act (Republic Act 10963) and Create law (Republic Act 11534).