P15-trillion gov't debt exploited for political gains
Diokno says the right way to look at the budget is to consider who benefits from it.
At A Glance
- Finance Secretary Benjamin Diokno believes that using net debt per person as a representation of the national debt is primarily a political statement and not an accurate measure of the economy.<br>Diokno emphasizes that understanding who benefits from the government budget and how it affects individuals is the proper way to assess it.<br>Senators have expressed concern about the increasing national debt, projected to reach P15.8 trillion by the end of 2024, burdening each Filipino with a debt load of P141,000.<br>National Economic and Development Secretary Arsenio Balisacan explains that the government needs to borrow money due to its limited budget, and stopping borrowing could hinder the country's growth potential.<br>Despite the substantial debt amount of P14.15 trillion as of June 2023, Diokno reassures that the debt-to-gross domestic product (GDP) ratio should be considered instead of focusing solely on the absolute debt amount.
President Marcos’ top economic manager said the projected government debt of P15 trillion this year, which would mean each Filipino owing over P137,000 if divided equally, has been used as a political weapon.
Finance Secretary Benjamin E. Diokno said that using net debt per person, or what each Filipino would owe, to represent the national debt is primarily a political statement rather than a direct measure of the economy.
While presenting the debt in terms of individual obligations aids in understanding its scale, Diokno emphasized that this approach is not an accurate representation.
The government ends up with more debt because it spends more money than it earns each year. This creates a situation called a "budget deficit" where the government's revenue is not enough to cover all the expenses for programs and projects.
In order to address this budget deficit, the government relies on borrowing funds, leading to a continuous increase in debts.
But for Diokno, “The right way to look at the government budget is to consider who benefits from it and how it affects you.”
The finance chief said that individuals classified as poor are not required to pay income tax or other taxes, although they may still contribute through value-added tax when making purchases.
However, Diokno said these low-income Filipinos receive various benefits like free education, free healthcare, and financial assistance.
“This is referred to as net incidence,” said Dokno, meaning who bears the tax burden and who benefits from the government budget and its welfare programs.
Last week, Senators became worried about the increasing national debt, which is projected to reach P15.8 trillion by the end of 2024. Some lawmakers warned that this would burden each Filipino with a high debt load of P141,000.
"It's a political indicator," Diokno said.
He reassured that the debt, which amounts to P14.15 trillion as of June 2023, should not be a cause for panic when considering the debt-to-gross domestic product (GDP) ratio.
Debt-to-GDP ratio compares the government’s total debt to the size of the country’s economy or its ability to generate income.
Diokno said the public should look at the debt-to-GDP ratio rather than the absolute amount.
In 2022, the total value of all goods and services produced within the Philippines, known as the GDP, reached P22.271 trillion.
The debt-to-GDP ratio in the second quarter of 2023 was 61 percent, a decrease from 63.5 percent recorded last year. This occurred despite the significant increase in the absolute amount of debt burden.
Monitoring the debt-to-GDP ratio is crucial as a high ratio suggests potential difficulties in repaying debts.
It is generally recommended that countries, like the Philippines, maintain a debt-to-GDP ratio below 60 percent as it is considered manageable and sustainable.
National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said the government needs to take loans because its budget is limited.
Balisacan pointed out that if the government stops borrowing money to address its increasing debts, it could harm the country's potential for growth.
To accelerate economic growth, Balisacan emphasized the importance of actively pursuing development projects, such as infrastructure, which is funded through loans.
“A country just like us has so many development needs, like infrastructure. If we want to grow fast, we have to access external and internal resources,” Balisacan explained.
He, however, said that the economy can continue to grow even without borrowing money, although it would be at a slower rate of one percent to three percent.
“Is that the growth we want?” the official asked. “Obviously, we will not be able to become even upper middle-income country in the next two years if that's the only growth that we are aspiring for.”