Wednesday, May 01, 2019

On PH's ratings upgrade by S&P

In 2018, PH taxpayers paid P349 billion interest payment alone (principal amortization not included yet) for the huge government debt stock of P7.78 trillion. Now S&P has given the PH a ratings upgrade and many people are applauding.

What S&P signals to lenders and creditors is that it is ok to keep lending big time to the PH (around P 0.5 trillion a year) because in place are new taxes and tax hikes to make sure that lenders will be fully paid tomorrow.

Meanwhile, a lot of ratings upgrade occurred in the previous admin. Duterte inherited the momentum.

Whether high or low interest rates for PH borrowings, can we just control and reduce public borrowings? Enough of huge interest payment alone.

The big decline in debt/GDP ratio, from 52% in 2010 to 42% in 2016, occurred in the previous admin. Duterte team just inherited the wisdom of control-thy-borrowings of the previous admin, now they spend and borrow big time because there are many new taxes and tax hikes in place.

S&P perhaps did not say that the previous admin set the healthier economy, average GDP growth of about 6.5% for six years, debt/GDP ratio declined by 10% in just six years. Now GDP growth is decelerating: 6.9% 2016, 6.7% 2017, 6.3% 2018. Inflation rate is highest in whole East Asia 2018 to present.

In ordinary household, social enterprises and private enterprises, people learn to save. Emergencies like a family member is terribly sick, heavy borrowing is justified, on top of selling and disposing some household assets and properties. When things normalize, people save and pay back their loans, and things move on.

In government, it's different. With or without emergencies, just borrow-borrow-borrow, no exception. And people clap and applaud government for its 'fiscal prudence.' Lousy.

Meanwhile, should the upgrade be rescinded?

I say Yes. I don't think Dutertenomics deserves that upgrade. See the moral hazards problem -- even with same old ratings, even with high interest rates, Dutertenomics will borrow around P500 B a year. With such upgrade, perhaps they will borrow P550 B, anyway interest rates are lower.

Credit grabbing goes to DOF. Because of Duterte daw, hahaha. Erap, Gloria periods, lots of negative outlook. Previous administration, series of upgrades. Dutertenomics simply inherited the momentum. The data are right in front of S&P and everyone else to see the trend -- decelerating GDP growth, highest inflation rate in E Asia 2018 to present, deteriorating current account, high domestic interest rates, etc.

No comments: