EVEN after the government has been able to improve the country’s fiscal position, a study from Tokyo-based Asian Development Bank Institute (ADBI) sees the country’s debt-to-gross domestic product (GDP) ratio staying above 50 percent until 2013.

An ADBI working paper said that if the country grows by 3 percent, debt-to-GDP ratio would be around 53 percent by 2013 but if the economy grows at around 5 percent, the debt-to-GDP ratio will be around 51 percent in two years.

While these rates are stable, the paper said these levels are still high. It said its projections are based on a deficit-to-GDP ratio of 2.3 percent and a debt-to-GDP ratio of 56.3 percent. 

If the country’s debt payments are high, in this case above 50 percent of GDP, this means additional burden for the Filipino people, because the government pays its debts through revenues it earns, mostly from tax payments.

If there are more debts to pay, more funds will be diverted to paying the interest and principal payments of these loans instead of other items that could directly or indirectly benefit taxpayers, such as subsidies, social safety nets, or addressing the country’s infrastructure constraints.

“The consolidation of government expenditure—particularly social spending in the midst of slow growth—has jeopardized improvements in the standard of living in the Philippines. Pressure on the budget has also led to a reduction in public investment in recent years,” the paper stated.

“Thus, while the deficit and debt levels are declining and fiscal sustainability is improving, sustaining these achievements will be challenging,” it added. 

In 2008, in the middle of rice-price crisis and on the brink of the global financial crisis, the government introduced the P330-billion Economic Resiliency Plan, which represented 4.1 percent of GDP. This led the government to postpone its medium-term balanced budget goal to 2011.

“While spending from the stimulus—which increased by 18.1 percent in the first half of 2009—provided some impetus to growth, the reduction in revenues by 4 percent and the blowout in the deficit to 4.1 percent limit the further role of fiscal policy in view of the persistently high level of debt and interest expenditure in the budget,” the paper said. 

To remedy the situation, the paper said it is important for the Philippines to embed automatic stabilizing impulses
through the provision of social safety nets and increase tax revenues collected from personal and corporate taxes, by reducing labor-market informality through improvements in the business environment. 

The study also recommended safeguarding fiscal sustainability; rebalancing growth by strengthening other sectors of the economy; reducing expenditures on subsidies; and ensuring smooth and efficient budget execution.

The Philippines’ debt problems, the ADBI said, sprung from poor fiscal management during the Marcos time, which eventually led to an external debt of 100 percent of GDP in 1986.