* This is my article in BusinessWorld last Tuesday.
During the BusinessWorld Economic Forum held last May 19,
Budget Secretary Benjamin E. Diokno showed two interesting charts: (1)
sustained overspending and borrowings, budget deficit/GDP ratio from -0.9% in
2015 to -2.7% in 2016 then -3.0% from 2017-2022. And yet (2) debt/GDP ratio was
expected to decline from 44.8% in 2015 to 40.2% in 2017 and further down to
36.7% in 2022.
Is this possible? That one overspends and over-borrows
and yet the debt/GDP ratio will keep falling?
DBM, NEDA, and Malacañang say yes because the projected
taxes/GDP ratio will increase via the proposed Tax Reform bill of 2017. Sec.
Diokno said in the same forum that “We will continue to guard against
underspending, the Waterloo of the previous administration.”
“Underspending” for me should mean that expenditures are
lesser than revenues, resulting in a fiscal surplus. When expenditures are
larger than revenues but the deficit is only at -1% or below -3% of GDP, that
is still overspending, not underspending. So the previous administration did
not really underspend, just that it did not go into an uncontrolled spending
spree.
Here are relevant numbers about the Philippines’ fiscal position and levels of outstanding public debt, and comparative debt/GDP ratio of seven ASEAN countries (see table).
The numbers above show three important facts:
One, the average deficit in the previous administration,
2010-2015 was only P185 B/year or -1.8% of GDP, benign and considered as
“underspending” by many fiscal hawks, especially when compared with deficit in
2009 (last year of the Gloria Macapagal-Arroyo administration) and 2016 (first
year of Duterte administration).
Two, low annual budget deficit and borrowings in the same
period means the country’s outstanding debt stock has risen only mildly, with
the average of P260 B/year.
Three, partly a result of this, the Philippines’ debt/GDP
ratio over the same period showed significant decline, similar to the
experience of Myanmar while other neighbors posted deficits, owing to increased
borrowing.
Fewer borrowing means less debt service payments for both
principal and interest. It was during the same six-year period that
Philippines’ GDP growth was 6.2% per year, much higher than Thailand’s 3.7%,
Indonesia and Malaysia’s 5.7%, Vietnam’s 6.0%.
In the same BW Economic Forum, the DoTr showed that these
projects will be ODA (government loans) funded, not PPP.
1. PNR North Railway (Manila-Clark), construction Q4 2017
-- Q4 2021, P255 B.
2. PNR South Railway (Manila-Bicol), construction Q3 2018
-- 2021, P270 B (originally a PPP).
3. Mega-Manila subway (Phase 1, QC-Taguig), construction
Q4 2019 -- 2024, P225 B.
4. Edsa-Central Corridor Bus Rapid Transit BRT (Edsa,
Ayala, Ortigas, BGC, NAIA), construction Q1 2019 -- Q1 2021, P38 B.
Other big projects were identified but it wasn’t
specified whether these would be funded by official development assistance
(ODA) or via Public-Private Partnership (PPP). In December 2016, DoF Secretary
Sonny Dominguez already indicated that infrastructure projects under the
Duterte administration will avoid PPP whenever possible. And the massive China
and Japan ODAs came into the picture.
Then there are tweaks in some major projects, from PPP to
ODA. Like the PNR South Railway and the Kaliwa Dam project in Quezon province
of Maynilad Water. What would pre-qualified players like San Miguel do with
this policy reversal?
The Dutertenomics’ spending plan is detrimental to
taxpayers in general and the investment environment in particular, for the
following reasons.
1. Bigger annual budget deficit would mean more
government loans, higher public debt stock, and will lead to higher taxes now
and the future to service those huge loans to be contracted. Soon the P6/liter
increase in oil excise tax will not be enough, it will further rise.
2. Massive shift from PPP (private investment) to ODA of
major infrastructure projects will result in more loans which mean more public
debt, more taxes, and fees in the future.
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See also:
BWorld 131, Why the FiT-All is a burden to consumers, May 18, 2017
BWorld 132, Global commodity prices, trade and growth, May 27, 2017
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