THE Department of Finance (DoF) rejected a proposed legislation that would cap the debt ratio at 50% of gross domestic product (GDP), citing the need to maintain flexibility especially in times of crisis.
This as lawmakers expressed concern over the massive loans incurred by the government since the pandemic began.
“I don’t think, at this point in time, there is a need to put a debt cap and make the country very inflexible,” Finance Secretary Carlos G. Dominguez III told the House of Representatives Ways and Means Committee on Monday.
The committee tackled House Bill (HB) No. 1539, which seeks to put a limit on the overall debt stock at 50% of GDP.
As of end-June, the government’s debt stock worth P11.2 trillion is already equivalent to 60.4% of GDP, up from 54.6% at the end of 2020 and much higher than the pre-crisis level of 39.6% in 2019.
The government was forced to ramp up borrowings since last year as pandemic-related expenditures soared and revenues plunged. This pushed the debt-to-GDP ratio to a 14-year high.
The DoF has started crafting a fiscal consolidation plan to bring down the budget deficit and debt ratio to pre-pandemic levels.
The committee also discussed HB No. 819, which aimed to create a new cabinet-level agency to oversee the debt management system of the state and to formulate related policies and strategies.
However, Mr. Dominguez said creating another agency to handle debt management is not needed since there are other agencies with similar functions, such as the International Finance Group of the DoF, Investment Coordination Committee (ICC) of the National Economic and Development Authority (NEDA), central bank’s Monetary Board and the interagency Development Budget Coordination Committee (DBCC).
“I think that flexibility is very important, the ability to act fast is crucial and quite frankly, at present, we have all the procedures already and the different sets of institutions to look at our debt. I think we have sufficient oversight already at this point in time,” the Finance chief said.
The economy would have contracted faster last year had the government not ramped up spending and raised borrowings, Mr. Dominguez added.
“When you have a pandemic, you have no choice. If we did not spend money, our economy would have tanked even more. You have to remember that our government is almost 25% of the entire economy, and if we withdraw from spending, mas lalo ’yung collapse ng economy. Sometimes you have no choice but you have to do it (borrowing) prudently and you have to invest the money in productive activities,” he said.
Albay Rep. Jose Ma. Clemente S. Salceda, who chairs the House Ways and Means Committee, said he is also not comfortable with the proposal to put a ceiling on the debt stock since well-considered borrowings can boost economic growth if spent productively.
In public finance theory, debt-funded spending towards programs that increase consumption, investment, and value-added in exports is good debt. Increasing debt is bad when it has no economic multipliers or creates no new economic activities,” Mr. Salceda said.
“Fear of debt is worse than debt itself,” he added.
Meanwhile, the House Committee on Ways and Means approved HB 7963 which seeks to amend Republic Act No. 8182 or the official development assistance (ODA) Act of 1996. The bill aims to maximize the benefits of the foreign aid by formulating the system on equitable distribution of ODA funds to all provinces.
NEDA Undersecretary Jonathan L. Uy, however, said the current law already addresses the requirements for ODA approvals and has safeguards to ensure equitable distribution of the foreign aid.
“We submit that the consideration of this proposed bill may be put forward in the future context, given other priority legislations being submitted by the executive,” Mr. Uy told lawmakers.
Bayan Muna Rep. Ferdinand R. Gaite, who co-authored the bill, however, stressed the need to amend the law not only to further ease the processes in acquiring ODAs, but also to improve the quality of foreign loans obtained.
The country’s ODA portfolio, which includes grants and loans from its multilateral and bilateral partners, jumped 42% to $30.39 billion (P1.52 trillion) last year from $29 billion in 2019, according to NEDA.
Mr. Salceda said the “best economic policies” the government can adopt are those that do not increase debt but stimulate economic activities, including the bills aiming to amend Public Service Act, Foreign Investments Act (FIA) and the Retail Trade Liberalization as well as a good framework of public-private partnership (PPP).
“All finance is future-looking, debt is basically a borrowing of future abundance to finance current scarcity or the capacity, therefore creditors measure the likelihood of future abundance as the capacity to pay,” he added.
Meanwhile, Mr. Dominguez said the most efficient way to get out of this debt is “to grow out of it” post pandemic.
The DBCC estimated the government’s debt stock will hit 59.1% of GDP by year’s end and peak at 60.8% in 2022, before it eases to 60.7% in 2023 and further down to 59.7% in 2024. — Beatrice M. Laforga