The Philippines risks having its debt-to-GDP ratio balloon to alarming levels seen in the 1970s if the Duterte administration’s decision to use official development assistance (ODA) to finance massive infrastructure projects is not accompanied by industry growth and better revenue collection, experts said.
Economists, like Dr. Rene E. Ofreneo, said borrowing funds to cover big-ticket projects was the practice in the 1970s, which caused the country’s debt to widen significantly.
“Our debts will really increase. That’s the lesson of the infrastructure binge of the 1970s.
We have to make sure industry grows side by side with infrastructure development,” Ofreneo told the BusinessMirror.
National Economic and Development Authority (Neda) Undersecretary for Investment Programming Rolando G. Tungpalan, however, assured that the country is in a “sound” financial position and can accommodate more ODA loans.
Tungpalan told the BusinessMirror that both Neda Secretary Ernesto M. Pernia and Budget Secretary Benjamin E. Diokno even said the country’s debt-to-GDP ratio will improve to 30 percent under the current administration despite the shift to ODA loans for infrastructure projects.
The Neda official also said the benefits of these projects to the economy are significant, as using ODA loans will allow the government to implement projects “swiftly and efficiently”.
“Infrastructure investments increase our capacity to grow [thereby] unleashing growth potentials of the regions by addressing bottlenecks,” Tungpalan said. He said earlier that over the last six years, the debt-to-GDP ratio has improved to 45 percent in 2015, from 52 percent in 2010.
While the government has decided to increase its deficit to 3 percent of GDP, Tungpalan said the deficit will be financed largely by local lenders at a ratio of 80:20, in favor of domestic borrowing.
With the expected expansion of GDP by more than 1.5 times by 2022, the government’s debt is expected to decline to 35.4 percent of GDP, from 42.7 percent last year.
To ensure that the Philippines would not be saddled with debts, First Metro Investment Corp. (FMIC) President Rabboni Francis Arjonillo said the government should see to it that the Comprehensive Tax Reform Program (CTRP) is properly implemented.
Arjonillo said reforming the country’s tax system can prevent the Philippines from once more joining the ranks of heavily indebted countries, which experienced skyrocketing inflation and interest rates.
Apart from this, he said the CTRP would also allow the government to increase its investments in health, education and other social programs.
“I think there is room for borrowings to grow if the tax take is not successful but at the expense of a very strong balance sheet, which is the basis for any credit rating upgrade forthcoming,” Arjonillo told the BusinessMirror.