Recently, an interesting dust-up ensued between Senator Sherwin Gatchalian and then-Finance Secretary (now Executive Secretary) Ralph Recto regarding the increasing national debt stock during a budget hearing. I was mentally hooked by their arguments. Gatchalian lamented that the debt level of ₱17.27 trillion as of June 2025 is tantamount to ₱142,000 in debt per capita—meaning every Filipino is indebted to a tune that has effectively mortgaged their future. Recto countered that this ₱142,000 actually represents savings, arguing that one person’s liability is another’s asset when invested in GSIS, SSS, PhilHealth, and Pag-IBIG.

Both arguments connote two different financial behavioral trajectories. Gatchalian implied the potential risk of high indebtedness on the country’s capacity to repay and its deleterious effects on national economic performance, business, and individual lives. Recto referred to the positive effect of debt capital in pursuing effective social and economic programs that ultimately benefit the country and its citizens. While per capita debt may indicate national leverage, it is an insufficient statistic for policy formulation if taken in isolation. Recto’s point provides a more logical and practical concept: in reality, debt is used to acquire or create savings to generate future economic value. As the economy grows, the debt level per capita effectively shrinks.

In financial constructs, leverage consists of two sides of the same coin: assets and their financing. This is depicted by the fundamental equation: Assets = Liabilities + Equity + (Revenue - Expenses). This is the mantra every finance and accounting professional keeps. To acquire assets, three financing sources may be tapped in combination depending on business requirements: debt, equity, and net operating profit cash flow. Debt and equity are external financing sources, while net operating profit cash flow is internal. I call these the Three Cs of cash flow sources: Creditors provide debt, Capitalists provide equity, and Customers provide profit.

Each carries a cost, and when put together based on a preferred capital structure, they become the Weighted Average Cost of Capital (WACC). The WACC serves as the "hurdle rate" for accepting or rejecting investment projects.

Government financing is based on fiscal and spending policies depicted in the national budget. Due to the tremendous economic and social requirements of a nation, internal resource generation through fiscal policies is often insufficient. The deficit between revenue and spending is, therefore, almost automatically funded by debt. If borrowings continue unabated without tangible social and economic benefits—but are instead lost to waste and corruption—then Gatchalian’s caution becomes compelling.

The state of the global macro-environment directly and indirectly affects assets and their financing. Effective fiscal policies for revenue and spending, alongside monetary policies for inflation, interest, and foreign exchange rates, are crucial. Current global turbulence—trade tariffs, supply chain issues, and geopolitics—is putting pressure on governments and businesses to adapt and mitigate risks. Adroit management of economic downturns is a decision always made under conditions of uncertainty. Two related frameworks are useful in analyzing the costs, risks, and benefits of financing decisions: the Risk-Return Model and Cost-Benefit Analysis.

The return desired from an investment prospect is the compensation for the risk associated with it. When an investor demands a high return, they imply a high-risk prospect. This is normal risk-aversion behavior. Risks manifest in different forms and timings—physical, monetary, systemic, and operational—factors that one may not be capable of predicting, much less avoiding. Risk management in both public and private enterprises is a function of good corporate governance, ethical leadership, and effective systems control. The purpose is singular: to minimize risk and enhance return expectations.

Cost-benefit analysis is the obverse of the risk-return framework. Here, risks are viewed as costs incurred to generate benefits. Thus, the benefit should be higher than the cost to enable a “go” decision. Because of the timing difference between the initial investment and future benefits, this calculation requires Time Value of Money (TVM) principles. For a prospect to be acceptable, the Net Present Value (NPV) of the future benefits should be equal to or greater than the initial investment outlay. If the present value of future cash flows is less than the investment, the rational decision is to reject it.

In summary, public finance must be used for capacity building in education, health, infrastructure, and governance reforms. Similarly, private enterprises must provide financing for growth, innovation, and market development. If managed properly, debt financing is indubitably not "deathly."