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Philippines
Thursday, March 28, 2024

‘Govt won’t repeat Marcos’ mistake’

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Following the Duterte administration’s aim to embark on an ambitious “Build, Build, Build” infrastructure program, Budget Secretary Benjamin Diokno allayed concerns over the country’s debt and fiscal sustainability position, saying that the current regime won’t be doing a repeat of the Marcos regime, which saw a debt crisis that plagued the Philippine economy in the 1980’s.

Diokno said that the administration will be focusing more on funding infrastructure through local spending rather than massive foreign borrowing and other capital outlays such as corporate equity and capital transfers to LGUs to avoid a repeat of the past.

“We will finance the bold infrastructure program through a combination of taxes, non-tax revenues, borrowings—both external and domestic. And in borrowing, we will be guided by the 80-20 mix. Meaning, there will be a bias for domestic sources rather than foreign sources,” Diokno said in a Palace news briefing on Friday.

“So that was the mistake of, for example, of Mr. Marcos then. He was heavily dependent on foreign sources. And because of a series of evaluation, like if you borrowed money at 4 to 1, and you have to pay it at 12 to 1, that’s 7 to 1 and eventually 45 to 1, that will be disastrous, okay. So that’s a big mistake. That is what we call foreign exchange risks. So our borrowing mix 80-20 will minimize the foreign exchange risk,” he added.

The government intends to spend some P8 to P9 trillion, or roughly $160 billion to $180 billion, from 2017 to 2022 to fund what is dubbed as the “Golden Age of Infrastructure” in the Philippines.

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The package includes an expansionary fiscal policy, increasing the planned deficit from 2 to 3 percent of GDP for the next six years and will be funded through an 80-20 borrowing mix in favor of domestic sources, which is expected to mitigate against foreign exchange risks.

Despite the ambitious infrastructure program, Diokno said that they expect the country’s debt-to-GDP ratio to fall from 40.6 percent in 2016 to 38.1 percent in 2022.

“With that kind of debt-to-GDP ratio, I’m telling you, the Philippines will gain the envy of many developed and developing economies. Put differently, we expect the economy to outgrow its debt,” Diokno claimed.

He likewise said that the country’s economic conditions have already changed that will enable the Philippine economy to weather external headwinds and avoid an economic/debt crisis.

“Lending rates are at an all-time low; the Philippines gross international reserves are hefty; its macroeconomic fundamentals are sound with declining debt-to-GDP ratios and prospective growth rate of 7% to 8% pegged for the medium-term. These factors cannot be said for the years leading up to the 1983 Philippine economic/debt crisis, which led to skyrocketing debt-to-GDP ratios and debt service payments,” Diokno said.

“Concerns over a looming debt crisis, as a result of the Duterte administration’s “Build, Build, Build” program are unwarranted. Economic conditions have changed for the better, and we have learned from the mistakes of the past,” he added.  

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