Is the Philippine national debt even an issue?

The campaign period of the 2022 Philippine general elections has officially started. Various executive and legislative positions from national to local posts are up for grabs, where the main candidates have their eyes locked on Malacañang. Political parties and politicians propose various policies that they wish to pursue, provided that they win the elections. Most, if not all of their platforms, cover portions about current Philippine economic issues. One of those perennial economic topics that they raise is about addressing the national debt of the country. Probably, many would still vividly remember when one of the presidential aspirants roughly a couple of decades ago publicly announced his intent to shoulder the tremendous national debt. Whether that disqualified candidate had the means to do such or not, the word “debt” definitely reverberates with numerous Filipinos. It has always been an effective attention-grabbing device, not only in the realm of Philippine politics, but all around the world.

First and foremost, there should be a solid understanding of how a government handles revenue, especially that government-related actions would always entail money. To simplify things, taxes that the regular Filipino pays are utilized to fund various government services. These would include, but are not limited to paying the salaries of civil servants, constructing new infrastructure projects, and maintaining basic services. If government spending is lower than government revenue, a budget surplus is generated which can be realigned for the next fiscal year. However, if government expenditure is larger than the apportioned budget, a budget deficit is incurred. If these deficits are carried over a particular period of time, debt is created through deficit spending.

With the global economic downturn caused by the COVID-19 pandemic, numerous countries changed gears in approaching this fiscal malaise. Supply chains were greatly disturbed, employment opportunities suddenly vanished, and the numbers of unemployment-related benefit claimants rose to record levels. In the Global North, a double-faceted approach was undertaken, where governments tweaked their fiscal policy, while central banks adjusted their monetary policy. With a pre-determined interest rate, government bonds were being issued to spur spending and consumption. On the other hand, central banks went with quantitative easing, a tactic that they leaned on during the 2008 Lehman Brothers financial crisis. Basically, the money-printing machine was turned on vigorously, in the hopes that an increased money supply will foster business creation and generation of employment opportunities.

However, this Keynesian approach has its own limits. Since money also follows the law of supply and demand, greatly increasing the money supply led to inflation rates surging beyond 2%, which is a number that these central banks have targeted for many years. With a relatively high inflation rate, labor costs also skyrocketed, hurting these small and medium enterprises and made retaining employees far more difficult. A number of economists are also worried that this global trend might end up turning from bad to worse, unless a drastic policy shift is observed from these governments and their respective central banks.

In the case of the Philippines, the current administration went with deficit spending by borrowing money to finance government expenditures as COVID-19 rampaged across the archipelago. The Philippine government needed to procure various medical supplies, which would include disinfectants, medicines, ventilators, freezers, and vaccines. In addition, financial assistance and distribution of basic necessities were also extended to millions of Filipinos. Furthermore, borrowed money also entails a specified interest rate that should also be repaid in the future. All of these do not come without a price tag, and the next administration will be confronted with the challenge of finding ways to keep the Philippine economy moving despite the nearly depleted financial resources. A financially prudent approach towards government expenses might provide the key to better navigate this tricky situation, while taking advantage of a rebounding economy.

To steer the nation towards continuous economic growth, the government can adopt a fiscal policy that could be adjusted according to the needs of the people. However, there might be a possibility that the country might have to impose certain austerity measures in the near future, most specially if the money well is running dry. These would either involve increasing tax revenue, adopting cost-cutting policies, or a mixture of both. Tax revenue can be increased by raising tax rates and/or by implementing a better tax collecting system, where tax evaders would be penalized. Raising tax rates however would be a highly unpopular move, as it can hamper consumption of goods and services. Cost-cutting policies basically means shrinking or restructuring of government services. In other countries, this would include slashing pension and health insurance benefits, putting a serious strain on living standards. All of these were observed when Greece attempted to address its financial failures during its fiscal crisis.

However, it should be considered that one of the better indicators of a country’s economic health is its debt-to-GDP ratio. A number of economists point out that a ratio of less than 100% of the gross domestic product is ideal, so as not to overwhelm the country with an increasingly unmanageable debt. Foreign investors also look at this indicator to assess if it is economically and financially sound to invest in a certain market or not, even though credit ratings issued by the likes of Moody’s, Standard and Poor’s, and Fitch are being primarily taken in to consideration. These credit ratings provide a measure on a country’s capability to meet its financial obligations, and an indicator to assess investment risk.

People generally think that incurring debt is something that should be both avoided and feared, most specially if there are limited means to repay them. However, in a larger setting like nation-states or probably even multinational companies, welcoming debt as a means to better position the country must be the mindset. Using these credits to invest in areas of the economy that leads to greater productivity is of utmost importance. These sectors would include education, infrastructure, and research and development, because the return on investments in the aforementioned areas is both all-encompassing and creates a more effective and efficient economy. A businessman-like train of thought in the government as a financier and a provider of services should never be frowned upon in this highly capitalistic world.

To create inclusive economic institutions in the Philippines, promoting foreign direct investments is a no-brainer. Lowering barriers to trade, liberalizing the markets, and embracing competition would create many winners for the country. Cooperation with private companies in highly promising strategic sectors would contribute to building a more productive economy. Debt and credit should be seen less as an obligation or as a risk, but more as an opportunity to undergo metamorphic structural changes and escape inter-generational poverty once and for all.

The Unpopular Opinion

A no one who enjoys the fun things of life in private.
A believer of freedom, capitalism, and conservative brand of politics.
A no one who cares less about popular public opinion.
A believer that life can be better, if every one is a tad more responsible.