Sunday, August 12, 2018

BWorld 239, Dutertenomics' debt addiction

* This is my column in BusinessWorld last August 7, 2013.



“It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense… They are themselves always, and without any exception, the greatest spendthrifts in the society.”

— Adam Smith,
The Wealth Of Nations (1776),
Book II, Chapter III, p.346.

When people spend above their means, they’re considered as profligate wastrels.

But when governments do it — when expenses exceed revenues, resulting in budget deficits — it is simply accepted.

Why?

Because many people benefit a lot from such irresponsibility — politicians, legislators, bureaucrats, consultants, suppliers, and those dependent on welfare.

Congressional hearings for the 2019 budget have already started this month and the House of Representatives and Senate will deliberate on the huge P3.7-trillion budget. It consists of P3.2-trillion projected revenues and P600+ billion of deficit financing or debt.

Since the Philippine government — regardless of administrations — is into endless debt addiction, the public debt stock keeps rising (P562B last year, P679B this year, P785B next year).

Likewise, the annual debt service expenditures, principal and interest mixture is about 55-45% (data from Budget of Expenditures and Sources of Financing (BESF) 2019 submitted by Malacañang to Congress) also keep rising (see table 1).



Meanwhile, the bulk of foreign debt payments goes to paying debt securities to cover the annual budget deficit, and not to multilaterals like the Asian Development Bank and the World Bank or bilaterals like the Japan International Cooperation Agency and the United States Agency for International Development that lend money for specific projects.

Below are some big items in foreign debt servicing. Small debt services that are below $50M like loans from USAID, French Protocol, KFW (Germany), and PL 480 are not included here. Debt securities have high interest rates, which can reach up to 10.6%, unlike those from multilaterals and bilaterals, which only range from 0.1% to 5% (see table 2).


All administrations including the Duterte government have the usual alibi — look at the debt/GDP ratio, around 40% and it’s sustainable, not the total debt stock.

The alibi looks cute and innocent except that the numerator, public debt stock, is debt by the government alone while the denominator, GDP size, is the flow of goods and services produced by mostly people in the private sector, households, and private enterprises.

A continuing budget deficit and addiction to debt are unsustainable.


The people should remind the politicians and legislators from the President down to local governments that having big tax cuts is better than endless big spending and borrowings.
-------------

See also:

No comments: