P 8.6 trillion national government debt by April 2020—how are we going to pay for all of these debts?

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From March 14 to June 4 this year, based on research group IBON’s monitoring, the Duterte government has already obtained foreign commitments of US$3.95 billion in loans, US$17.3 million in grants, and US$5 million in technical assistance (TA) – all for addressing the COVID-19 pandemic.

The Philippine-headquartered Asian Development Bank (ADB) accounts for US$2.1 billion of the loans plus all of the TA and much of the grants. The World Bank accounts for US$1.1 billion, and the China-led Asian Infrastructure Investment Bank (AIIB) for US$750 million. There are US$9.3 million in grants from USAID. In sum, there are 7 project loans, 2 grants, and 1 regional TA so far.

Loans amounting to US$3.95 billion are, at the current exchange rate of Php50.05 to a US dollar, equivalent to Php197.7 billion. This increased the outstanding national government debt which has already risen from Php7.7 trillion by the end of 2019 to an astounding Php8.6 trillion by April 2020.

 

Where the loans will go

The government has maintained the need to apply for loans because COVID-19 is unplanned.

The loan commitments are specified for strengthening healthcare, augmenting funds for socioeconomic relief, and providing economic stimulus for agriculture and micro, small and medium enterprises (MSMEs). There are also wage subsidies for small enterprises and support for repatriated overseas Filipino workers (OFWs).

IBON found that the loans are “part of a larger package which includes even bigger support for businesses who get financial relief in the form of tax deferrals, low-interest loans, and credit guarantee schemes.”

The COVID-19 loans are really for budgetary support to continue spending on the administration’s Build, Build, Build (BBB) infrastructure projects, foreign investment attractions, tourism and other boosters of the otherwise slowing, and now contracting, economy, said IBON.

Where will the loans go based on IBON monitoring:

  • The ADB has pledged US$1.5 billion from its COVID-19 Active Response and Expenditure Support (CARES) program for fiscal management, among others.
  • The AIIB’s US$750 million loan is co-financed with CARES. The AIIB only has loan facilities for infrastructure investment and does not have a ‘development financing’ orientation. It recently launched a COVID-19 recovery facility but even this is oriented towards addressing liquidity problems, providing fiscal and budgetary support in partnership with multilateral banks, and building health infrastructure – all so that governments can focus on COVID-19 impacts and leave infrastructure funds alone.
  • The more recent Php400 million loan commitment of the ADB to strengthen domestic capital markets and investments is more explicit. This is to enable the Duterte government to fund infrastructure at lower costs and to enable the private sector to raise infrastructure funds from capital markets.

“COVID-19 is unplanned, while the Duterte administration’s focus is unchanged. The government is still fixated on burnishing the economy’s image to attract foreign investors, and will only address the emergency by as much as it can borrow. This reinforces the country’s vicious spiral of debt and shallow economic growth,” said IBON Executive Editor Rosario Guzman.

 

Why does IBON think the debt is unpayable?

In mid-April, the Department of Finance rejected suggestions that the country request a debt moratorium and said such suggestion is “narrow-sighted.”

Finance Secretary Carlos Dominguez III said the country “has not and will not consider a moratorium on the national government’s debt obligations despite the 2019 COVID-19 pandemic.”

“Debt moratorium has not crossed our mind. It was never entertained or will ever be a part of our crisis response measures,” Dominguez said.

Dominguez explained that the country “cannot wish away our obligations at this critical time when the reliability of our word secures our economy’s capacity to bounce back once the COVID-19 pandemic is over. More favorable options are available for financing our emergency and recovery programs. If we lose our credibility among international lenders, we will lose our ability to access low-interest, concessional financing for our recovery and stimulus programs.” 

Lenders have offered to defer debt payments for those severely affected by the lockdown. But the Duterte government, with its much-brandished good credit standing, could have moved for debt relief too but instead, at the height of the COVID-19 pandemic, it started borrowing more, said IBON.

IBON believes that the debt is eventually unpayable and such a huge burden for the following reasons:

  • Official development assistance loans may be at concessional rates but are tied to the conditionality of using the technology, materials and expertise of the creditor country. In the case of China, this includes even the use of Chinese labor.
  • Absorptive capacity in a program as grand as Build, Build, Build (BBB) is a major issue. The Philippine government lacks the bureaucratic and technical capacity to implement all the grand infrastructure projects. This capacity has been eroded by decades of privatization and deregulation. The private sector, on the other hand, is not that deep because of the economy’s backward fundamentals.
  • BBB’s main focus is mobility for the benefit of the service and trading oriented economy, and not in building Philippine agriculture and industry. Thus the infusion of infrastructure capital or even the construction of the facility will not be useful in the long run for national development.
  • It is the Filipino people who are being obliged to fully pay for this mounting debt. This early, the government is already thinking of taxing and raising government fees on the very coping mechanisms of the dislocated working people. For instance, the economic managers want to tax online selling even as people are losing their sources of livelihood, or want to collect bike registration fees as workers seek alternatives to the poor public mass transport, among others. The government already failed to meet its revenue target in 2019, short by Php12.2 billion, and is anticipating even bigger spending and bigger debt in 2020.

 “Our future is being mortgaged. It doesn’t help to cure apprehensions when government says that the debt is manageable. Government has to end its anti-people neoliberal economic policies, and only then shall we be well,” ended Guzman.

 

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