“Debt is the slavery of the free” – Publilius Syrus
Make no mistake, we are a growing economy, and we are almost in the top 30 economies in the world by the end of the year and among the top 10 in Asia. Economic experts project a 5.5 to 6.5 percent increase. Surprisingly, we have surpassed Malaysia and Vietnam in terms of GDP which stands at $461 billion in terms of nominal value.
Last year we increased our per capita income by more than 30 percent. This is such a feat. However, there are major threats in our economy other than the obvious parochial and great political divide, the expected but harrowing climate crisis literally sweeping off major parts of the country by floods and heavy rains, almost unabated road accidents and cybercrimes, and geopolitical bullying.
RISKS AND DEBT SERVICE
In fairness, this country is on a steady growth by one or more indications but the national debt. Yes, alarming is our national sovereign debt which stands at 16.92 as of end May this year, of which 69.6 percent is domestic at 11.78 trillion, sourced from treasury bills and bonds from government securities, the Bangko Sentral and private lending institutions. The 30 percent remaining obligations are foreign debt.
Obviously, domestic debt is preferred for increased money circulation and spending and lower risks and accountabilities. Experts argue the fundamental principle of domestic debt that “when you [loan] to your people, you pay to your people and money stays and circulates.”
Enter the risk factor vis-à-vis the developed practice that has evolved into a culture of accountability. When leadership is passed on from one leader to the other according to the constitutional mandate that risk and accountability transforms into an “opportunity of abuse”.
Basic principles of governance have now become lip service. A case in point is FPRRD incurred debt which was P6.84 trillion and by end of June 2022 the country has a responsibility of P12.79 trillion largely attributed to the pandemic. This was 63.5 percent debt-to-GDP ratio 3.5 percent higher than the internationally accepted 60 percent debt-to-GDP ratio.
When debt takes centerstage major and important public services are put to risks. In 2024, our debt service was placed at 7.6 percent in terms of debt-to-GDP ratio as we were obliged to pay P2.05 trillion where P848B went to interest payment and the remaining slashed a small part of the principal loan. Debt service was at 36 percent of the annual budget – the amount lost supposedly used to undertake major and long term public services such as education, infrastructure, health care and job creation.
GOOD DEBT
Essentially, debt is not bad at all. When a loan is used with frugality and cautiousness it can stimulate productivity spurring long-term growth. However, the rule of thumb is that spending must not outweigh the amount of loan used qualitatively. This simply means that the annual government budget are not heavily spent on subsidies without return, highly politically preferred project spendings and other forms that leak out of corruption.
There are dire consequences of debt. It can bankrupt an economy – such are the cases of Sri Lanka and Bangladesh whose costly spendings paid respective heavier prices on top of their leaders’ ouster burdened by the unemployed and hungry citizenry.
There are pending bills in congress that need to become laws this country needs to invest on to ensure sustainable long-term effects such as the Living Wage to increase productivity of the Philippine labor force. You increase a worker’s wage and he becomes productive as he spends more. The other one is the senate Bill number 8 by Senator Loren Legarda or the Pangkabuhayan Act that aims to assess MSMEs especially those struggling ones. This can uplift the spirits of small and medium businesses. Debt spent on these endeavors ensures sustainability.
The other day the PBBM approved the P6.793 trillion National Expenditure Program for 2026 for congress to deliberate. This is the highest NEP in the country’s history. More than anything else, basic and fundamental services must not be sacrificed because it would be a disservice to the Filipino people if education, healthcare and jobs get a mediocre share of the budget. Last year’s budget was cursed by most – time to redeem.
For sure, the President will not heed the finance secretary’s idea of taxing the bank savings by 20 percent except the oligarchs maybe.*
