Santiago F. Dumlao Jr. l September 11, 2024 l Business Mirror
IT has been repeatedly raised with a note of ascending alarm that our government borrowings are exceeding the limits of prudence. At the rate our national debt is growing, when do we get to the edge of the cliff?
The crusading mayor of Baguio City, Benjamin B. Magalong, was the one who loudly raised the issue of our bloated national debt, making front page news.
Setting aside a prepared speech to “let me speak from my mind and from my heart,” he said. “Last April, news came out that our national debt is already at P13.86 trillion ($230 billion to $250 billion). Remember that when we started, when President Duterte started his administration as president of the Philippines, our national debt was just 5.7 trillion pesos (nearly $ 100 billion) accumulated for decades. In just a matter of seven years, our national debt increased by as much as 142 percent; we’re now at 13.86 trillion.”
In fact, the updated national government debt as of end-June 2024 was P15.48 trillion, an increase of 9.4 percent from P14.62 trillion a year earlier.
It is the increasing debt servicing from our borrowings that concerns us all. The interest payments (excluding amortization) as a percentage of our total budget disbursements) have progressively–some will say alarmingly–increased from: 11.8 percent in 2023; 13.3 percent in 2024 (program); 13.7 percent in 2025 (projections); and, 14.9 percent in 2026 (projections).
Note that big increase in 2026.
These are the key percentages to closely watch. And likewise, we should monitor in parallel our government debt-to-GDP ratio, which is a measure of the burden to the ability of the country to manage its debt obligations and still grow the economy. Not to worry, says Secretary of Finance Ralph G. Recto. He assures, our total debt today is roughly P15 trillion; the size of our economy is P26.5 trillion. Our country’s debt-to-GDP ratio as of June 2024 stands at 60.9 percent versus 61.0 percent as of end-June 2023. By comparison, other peer countries have these debt-to-GDP ratios: Vietnam, 34.5 (2022); Indonesia, 39.4 (2024 June); Malaysia, 61.1 (2022); and, Thailand, 61.8 (2023).
And if we want to “feel good” about comparisons, the debt-to-GDP ratio of Japan is 263 percent (2023) and the US, 123 percent (2023).
Mayor Magalong is quoted to continue: “Our ability to pay our debt would depend on our ability to manage our financial leakages.”
Of course our ability to pay depends on several other factors, but the good Mayor makes a particularly relevant point. The financial leakages are a very major drain on our resources, more specifically, our national budget from which to source our payments.
He was specifically referring to leakages from corruption. This is why guarding and preventing these financial leakages in the national budget are our continuing concern. The ongoing congressional budget hearings are informative and instructive as government agencies are scrutinized about past and proposed spending. Media coverage has been extremely helpful in enforcing public transparency in budget formulation.
But transparency is not, and cannot, be enough. We must demand accountability from those who cause, perpetuate or allow these financial leakages which, in their effects, cascade to worsen our debt-to-GDP ratios. This ratio was at its lowest at 39.6 percent in December 2019; highest at 72.3 percent in September 2024.
Our Congressmen are doing their job of scrutinizing proposed spending in the current budget hearings, well-publicized by media coverage. But perhaps they should give as well a critical look at their “pork barrel insertions” disguised as legitimate public work projects.
Santiago F. Dumlao Jr. is the Secretary General of the Association of Credit Rating Agencies in Asia, chairman of the market governance board and market policy committee of the Philippine Dealing & Exchange Corp. and former Finex president. His views do not necessarily reflect those of the Financial Executives Institute of the Philippines and the BusinessMirror. Photo from Pinterest.