The prolonged pandemic has brought unprecedented economic challenges worldwide. In the Philippines, the COVID-19 crisis has wiped out the country’s gains over the past years as it incurred a staggering P1.4-trillion loan to fight the pandemic.
Two years in, the virus remains very unpredictable and the government already suffered hefty tax losses from this pandemic-induced economic slump that also resulted in the rise in debt.
According to the Department of Finance (DOF), the government incurred P785.64 billion in tax revenue losses as a result of the crisis, that is about 4.4 percent of the country’s economy, as measured by gross domestic product (GDP) in 2020 alone.
The lower tax haul was a reversal of the 16.2 percent growth that the Duterte administration had projected before COVID-19 struck at the onset of last year.
For this reason, debt of the government as of end-November 2021 ballooned to P11.93 trillion, or P3.24 trillion more than the P8.48 trillion outstanding loans at end-March last year.
Finance Secretary Carlos G. Dominguez III, the government’s chief economic manager, the total financial cost of COVID-19 related loans has amounted to $28.91 billion or P1.47 trillion.
The borrowed money was raised through concessional loans from the Asian Development Bank, World Bank, Asian Infrastructure Investment Bank, and other development partners of the Philippines.
The Duterte administration also tapped the commercial debt markets by selling IOUs to foreign creditors.
Of the total borrowings, its principal is $22.58 billion or P1.15 trillion, while the projected amount of interest payments until maturity between 2024 and 2060 is $6.32 billion or P320.85 billion.
Of the principal amount, $21 billion was earmarked for general budget assistance to compensate for the loss in government collections, while $2.4 billion was allocated for COVID-19 response and recovery projects, including vaccine procurement.
According to Dominguez, $19.8 billion of the total borrowed amount had been disbursed to bridge the budget deficit since March of last year, while about $1.2 billion of the $2.4 billion loans were used to purchase laboratory equipment, medical supplies and vaccines.
With less than a year before the end of President Duterte’s term, Dominguez admitted that the current debt level is not sustainable, saying his successor must keep a close eye on how to grow out of the multi-trillion peso debt.
The DOF estimated that the next administration should grow the economy by more than six percent to bring back the government’s debt-to-GDP ratio to a historic low again.
The government entered 2020 with a debt-to-GDP ratio of 39.6 percent. However, this grew to 60.4 percent as of end-June 2021, slightly above the internationally accepted level of 60 percent.
The DOF is now reviewing the viability of pursuing a fiscal consolidation plan to minimize whatever long-term economic scarring may occur as a result of the COVID 19-induced crisis.
“We are preparing a fiscal consolidation plan, but it's not going to come out in one blow,” Dominguez said. “We will do it through periodic issuances, periodic op-eds .”
“It's an evolving plan, which we will leave to our successors in the next administration,” he added