Are we borrowing too much? DOF chief Dominguez explains

The Philippines’ current debt is high but “sustainable,” Finance Secretary Carlos Dominguez III said on Monday evening, suggesting that the country may return to "normal" in 2022 or 2023 amid concerns about the country’s borrowing during the coronavirus pandemic.

At the Talk to the People televised briefing led by President Rodrigo Duterte, Dominguez acknowledged that the deficit has almost tripled from 2019, the last “normal” year, as government spending rose due to the battle against COVID-19 and revenues slid due to lockdowns.

“We had to borrow money because humina nga yung economy natin kasi mga lockdowns, tapos bumaba pa yung collections natin kasi humina ang business,” he said.

[We had to borrow money because the economy slowed due to the lockdowns, and our revenue collections also went down because business also slowed.]

Dominguez explained that in 2019, the country’s total revenues amounted to P3.14 trillion, then declined to P2.86 trillion in 2020 as the pandemic hit. The DOF’s revenue estimate for 2021 is P2.88 trillion.

On the other hand, expenditures rose from P3.8 trillion in 2019 to P4.23 trillion in 2020, and 2021 the government expects to spend P4.7 trillion.

The country’s deficit therefore increased from around P666 billion in 2019, or 3.4% of the gross domestic product (GDP)—which, though “normal” compared to the current situation, already overshot the government’s deficit ceiling of 3.25% of the GDP— to P1.37 trillion in 2020 (or 7.6% of the GDP) and estimated P1.86 trillion for 2021 (or 9.3% of the GDP). 

Dominguez said the country’s borrowings went up from P1 trillion in 2019 to 2.7 trillion in 2020 and an estimated P3.1 trillion in 2021—as a percentage of the GDP, going from 30.96% in 2019 to 54.5% in 2020 and an expected 58.7% in 2021.

“Of course the debt level has increased, but we know it is temporary. It is not a permanent situation. Once we open the economy our revenues will go back, and once we beat COVID, our expenditures for COVID are also going to go down,” he said.

“We are going to become normal again, probably in 2022, probably in 2023. We will become normal like 2019 when our deficit [was] much lower,” Dominguez added.

Dominguez also cited the administration's tax reforms as the reason for the Philippines' "very, very strong" credit ratings, saying they have not been downgraded and that therefore the interest rates are quite low.

In its latest report, S&P Global Ratings kept its long-term sovereign credit rating on the Philippines at "BBB+" with a stable outlook, but flagged risks such as the government's rising debt.

“We think the debt level of our country is high, but it is sustainable and we can manage to handle this debt in the coming years,” Dominguez said.

In the first quarter of 2021, government expenditures grew 19% year-on-year to P1.017 trillion.

Vaccines budget

Dominguez also discussed the country's P85-billion budget to buy COVID-19 vaccines, saying that the amount is enough to buy 140 million vaccine doses, enough for 70 million Filipinos which, he said, is the entire adult population.

If the Philippines chooses to vaccinate children from 12 years old as well, Dominguez added, the DOF estimates this will require another P20 billion. "We have enough reserves to cover that amount of money, so we have enough," he said.

"We don't have to worry. The money is there. and we will certainly be able to vaccinate the entire adult population plus the teenagers, who are I think around 15 million," he added.

Last month, Dominguez said that the source for the P20 billion that would be  needed to vaccinate 15 million children was "still to be determined." — BM, GMA News