DOF assures no looming loan default

Published August 18, 2022, 1:28 PM

by Chino S. Leyco

The Department of Finance (DOF) assured the Senate that the national debt remains within manageable levels, allaying fears of the country defaulting on loans amid a slightly elevated debt-to-gross domestic product (GDP) ratio.

Finance Secretary Benjamin E. Diokno issued the statement in response to Senate Committee on Ways and Means Chairperson Sherwin Gatchalian, who sought reassurance that the country will not be like Sri Lanka that recently defaulted on its debt and declared itself bankrupt.

“I can assure you, your Honor, that we won’t go the Sri Lanka way. We’re very careful with our borrowings. In fact, as [Treasurer Rosalia De Leon] said, I think most of our debt is long term,” Diokno said.

“[Former Finance Secretary Carlos Domniguez] has been very good in making sure that we borrow at the lowest possible interest rate and it’s spread out,” he added.

At end-June, the national government debt stood at P12.79 trillion, equivalent to 62.1 percent of GDP.

Under the Marcos administration’s Medium-Term Fiscal Framework (MTFF), the government aims to bring down the country’s debt-to-GDP ratio to less than 60 percent by 2025, and cut the deficit-to-GDP ratio from the current 6.5 percent to 3.0 percent by 2028.

“The implication is clear: we do not have to borrow as much as we did during the crisis years,” said Diokno.

De Leon said the government’s prudent debt management strategy has enabled the country to safeguard its sovereign ratings amidst a sea of downgrades.

Diokno previously expressed confidence that there will be no downgrades in the country’s credit rating, as the Marcos administration has crafted a comprehensive economic plan that will boost investor confidence and ensure accelerated recovery.

He noted that despite the two-year pandemic, the rating agencies have affirmed the country’s investment grade rating, while downgrading nearly one-third of the emerging economies and even some developed countries.

Diokno told senators that the enhanced tax system instituted by the Duterte administration ensures that the government will be able to meet its obligations.

“I think, what you’ve done, because you have strengthened the tax system, I think we should be able to service whatever we borrowed down the road,” said Diokno.

The MTFF proposes measures that will further improve tax administration and enhance the fairness and efficiency of the tax system.

“I can assure Mr. Chairman and members of the committee that in fact that is the purpose of the Medium-Term Fiscal Framework—to make sure that we don’t go the Sri Lanka way,” said Diokno.

 
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