We will be fine

Published June 17, 2022, 12:05 AM

by Bernie Cahiles-Magkilat



It’s more than a month since we exercised our freedom to vote. To the losers, no reason can suffice our inner search for an answer. Perhaps, Filipinos just chose to forget for good. All the more, we disdained self-righteousness. Probably, the “bahala na” mentality crept in and all we could do was cast our lots, hoping it will turn out for the best.

Whatever is the reason, we are in a democracy and we need to move on. Majority of Filipinos have spoken. Vice-President Leni Robredo herself did not give any a slightest opposition to the proclamation of Ferdinand Marcos Jr. The country prepares for the inauguration of the son of then deposed President Ferdinand Marcos Sr. as the Philippines’ 17th president. And we are watching with bated breath.
Meantime, we expect the new administration to hit the ground running.

Foremost, the priority of the Marcos administration is the country’s economy, how to solve the debt-to-GDP ratio at 63.5 percent, which is above the international acceptance threshold of 60 percent.

As of April 2022, the Bureau of the Treasury reported that government’s total outstanding debt has ballooned to P12.763-trillion, up by 16 percent or P1.772 trillion from P10.991-trillion in the same month last year.

Of the total debt stock, 70 percent were domestically borrowed, while the remaining 30 percent are held by foreign banks.

The debt-to-GDP ratio is a major indicator that government economic leaders keep a close watch. A low debt-to-GDP ratio indicates that the economy produces and sells goods and services sufficient enough to pay back debts without incurring further debt. Conversely, a high debt-to-GDP ratio indicates weak economy that could lead to difficulty paying, a potential of defaulting on loans, and difficulty getting new loans.

With high debt-to-GDP ratio, the economy faces the possibility of credit rating downgrade. A downgrade means difficulty is tapping new loans to fund the country’s financing needs.

A credit rating applies to various kinds of borrowers — countries, businesses, and organizations. A credit score applies to individual loans or credit card application. But both represent the creditworthiness of the borrower.

A credit rating is usually shown as a series of alphabetical symbols, and is calculated using corporate financial instruments. Thus, we have A, B and C grades assigned by international crediting raters such as Fitch, Moodys and S&P.

A credit score is a number, usually between 300 and 900, given to individuals to rate their creditworthiness for personal loans and credit card application. It is calculated by credit bureaus based on the person’s credit information report.

In layman’s term, if an individual with a poor credit score applies for a bank loan or a credit card, he will most probably be denied by the bank because he is high risk of defaulting on his loans.

A good credit rating improves credibility and indicates a good history of paying back loans on time. It helps banks and investors decide about approving loan applications and the rate of interest offered.

Despite the Philippines not so good debt-to-GDP ratio, incoming finance chief Benjamin E. Diokno, who is currently Bangko Sentral ng Pilipinas (BSP) Governor, is unperturbed. He is confident the domestic economy can sustain its growth trajectory that will enable the country to pay off its debt on time.

“I don’t think that is really a cause for concern because as long as we continue to grow at around six to seven percent, on a sustainable basis, we can easily outgrow our debt,” he said. He even said the recently revised seven to eight percent GDP growth this year is doable.

While the former budget chief in two past administrations expects challenges and obstacles as finance chief, what gives him the confidence is the tax system left by the Duterte administration, which he said is better than the previous.

He believes that the tax reforms initiated by President Duterte in nearly six-years provided the incoming administration enough legroom to generate additional revenues to support the same level of public spending.

With better tax system today, Diokno said he is confident that the new administration will be able to raise enough taxes to ensure that the government will meet its budget deficit ceiling targets.
In addition, he also vowed to seriously consider the proposed fiscal consolidation plan left by outgoing DOF chief, Carlos Dominguez III, which includes a resource mobilization plan.

With that, Diokno expressed confidence the economy can beat the high debt-to-GDP ratio.
He could not say yet if there is a need to raise or lower taxes, but one thing is certain – Diokno will focus on tax administration to generate more revenues for the government.

“I think it’s important to raise the growth momentum of the economy because a strong economy means strong tax (and) government resources. The tax system is — in the economic language — elastic. So, the higher the growth of the economy, the more revenues we will collect,” he said.

Diokno was so confident that he has no plan to advise the incoming Marcos administration to cut government spending. In fact, he also vowed to sustain the Duterte administration’s “Build, Build, Build” program.

Filipinos trust and like the new economic team being put together by the incoming administration. We are in good hands, then. We will be fine.