Sunday, March 31, 2019

BWorld 308, MORE debt reduction please

* This is my article in BusinessWorld last March 29, 2019.


How dangerous or non-dangerous are China loans to the Philippine economy?

This is a valid concern but another bigger concern is the endless and irresponsible borrow-borrow-borrow policy of various administrations even without economic turmoil or crisis. This is the subject of the Market-Oriented Reforms for Efficiency (MORE) series of this column today.

The good news in the Philippines’ public debt is that the debt/GDP ratio has been declining since the last decade from 74% in 2004, 55% in 2009, to only 42% in 2016. The bad news is that the decline has been halted under the Duterte administration (see Figure 1)


The decline in trend was due to high borrowings by the current administration, even if they have big new tax revenues under the TRAIN law on top of natural increase in taxes. And high public debt means high interest payment.


Philippine government’s outstanding debt stock (actual + guaranteed) and interest payment, P billion

Now the China loans. One example often cited is Sri Lanka, with unpaid debt of $1.1 billion it was forced to lease out to China its strategic Hambantota Port for 99 years.

Some 21 projects worth P753.4 billion have been proposed for China funding by the administration, many of which can be done by big local firms at no cost to taxpayers. The Kaliwa Dam Project should be zero loan if the Duterte administration allowed the original Japanese proponent GUDC, or two local firms pre-qualified by the PPP Center, San Miguel and Datem, to build it under integrated PPP financing. But Duterte awarded the contract to China and we have a new loan of P18.7 billion.

We need less borrowings. We need to retire more old loans and we should pay low interest payment. There should be more fiscal responsibility in government.
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