Gov’t earmarks P1.6 trillion to pay debts next year

The government is allocating more than P1 trillion next year to settle maturing local and foreign debt as well as its corresponding interests, according to budget documents.

Under the Budget Expenditures and Sources of Financing for Fiscal Year 2023, the government is earmarking P1.601 trillion for debt servicing.

The amount includes P1.019 trillion in principal repayments and P582.32 billion in interest payments.

Sought for comment, Finance Secretary Benjamin Diokno said that principal payments are covered by a bond sinking fund, or money maintained to pay off debts.

Nonetheless, Diokno said that interest payments of P582 billion as percentage of the P5.268-trillion 2023 budget is 11.5%, “which is manageable.”

“About three decades ago interest payments as percent of the budget was about one-third. Those were the hard times,” Diokno told GMA News Online.

The debt servicing expenditures next year is programmed to be higher than the P1.263 trillion earmarked to settle debts this year.

Broken down, the P1.6 trillion set aside for debt settlement will be for P1.348 trillion in domestic debts and P253.775 billion in foreign loans.

In particular, the P1.348 trillion programmed for domestic debts will settle maturing P20 billion worth of Treasury Bills, P671.3 billion of Fixed Rate Treasury Bonds, P59.18 billion Benchmark Bonds, P565.25 billion Retail Treasury Bonds, P26.878 billion Onshore Dollar Bonds, P2.14 billion Agrarian Reform Bonds, and P2 billion Central Bank-Board of Liquidators (CB-BoL) Bonds.

For foreign debt, the amount earmarked for repayment is comprised of P131.312 billion in interest payment and P122.464 billion for principal amortization for loans incurred by the national government through various loan deals with several creditors such as the Asian Development Bank, the Japan International Cooperation Agency, and the US Agency for International Development, among others.

The automatic appropriations for debt servicing or payment of principal and interest on public debt is provided under Presidential Decree No. 1177, issued by late former President Ferdinand Marcos Sr. in 1977.

Under Section 31 of PD 1177, “All expenditures for (a) personnel retirement premiums, government service insurance, and other similar fixed expenditures, (b) principal and interest on public debt, (c) national government guarantees of obligations which are drawn upon, are automatically appropriated.”

In a statement sent to GMA News Online, Budget Secretary Amenah Pangandaman said that “debt-servicing is expected to stabilize and decline over the near term, consistent with the Marcos Jr. Administration’s fiscal consolidation plan of reducing national government (NG) debt-to-GDP ratio.”

“This plan is anchored on its medium-term fiscal framework (MTTF),” she said.

Biggest since 2011

Think tank IBON Foundation executive director Sonny Africa said that “P1.6-trillion in interest and principal payments on debt is the most the government has ever paid for debt service.”

Africa said it is equivalent to using 44 centavos out of every peso in revenues, “which is the biggest share of revenues going to debt service in 12 years, or since the 68 centavos being paid in 2011.”

Africa said that using so much of revenues to repay debt is counterproductive as “large share of government revenues [are] going to debt service instead of being spent domestically on urgent ayuda, education, health, and MSMEs (micro, small, and medium enterprises).”

“The government can consider negotiating a suspension or even cancellation of debt payments to development agencies like the ADB and World Bank, or to the bilateral creditors of friendly governments like Japan, US and China —this can free up over P90 billion in 2023 alone which can be used more productively,” Africa said.

Sought for comment, Rizal Commercial Banking Corporation chief economist Michael Ricafort said that “the increase in debt servicing/payments in the national budget may already reflect the need to pay the large additional debt incurred during the pandemic (P2 trillion per year or a total of P5 trillion since 2020).”

“The increased debt payments would be part of the sacrifice to be able to better manage the country’s debts/overall fiscal performance, bring down the debt-to-GDP ratio to below the international threshold of 60%, and make it more sustainable over the long-term term and for the coming generations,” Ricafort said.

Likewise, Union Bank of the Philippines lead economist Ruben Carlo Asuncion said that higher debt service allocation is “precisely the bitter pill that our policymakers have to face with the bigger debt stock. Budgeting is difficult and the law provides that we pay for our debt accordingly.”

As of end-June, the last month in office of the Duterte administration, the national government’s debt stock amounted to P12.79 trillion, as the previous administration embarked on a borrowing spree to boost state coffers to respond to the COVID-19 pandemic—providing cash aids to vulnerable sectors, procuring vaccines to immunize the population, among others—as it implemented hard lockdowns to control the spread of the disease, causing economic activity to contract which affected state revenue collection. 

The Marcos administration is targeting to bring down the debt-to-gross domestic product (GDP) ratio below 60% by 2025. 

As of end-June, the debt-to-GDP ratio—a measure of size of the government’s debt relative to the economy—stood at 62.1%, above the internationally recommended ceiling of 60%. 

Priority sectors

The Budget chief also emphasized that “debt servicing shall not hamper the implementation of the government’s priority programs and projects.”

Despite the higher allocation for debt settlement, there were double-digit increases in the allocations for education, infrastructure, health, social protection, and agriculture in the Department of Budget and Management’s (DBM) proposed 2023 budget. 

The funding for the education sector, which by law receives the largest share of the budget, increased to P852.8 billion from P788.6 billion this year.

Majority of the amount will go to the Department of Education (DepEd)—currently headed by Vice President Sara Duterte-Carpio—with P710.6 billion, up 12.20% from P633.3 billion in 2022.

Aside from the DepEd, funding for the sector also covers the state universities and colleges (SUCs), the Commission on Higher Education (CHED), and the Technical Education and Skills Development Authority (TESDA).

The proposed budget also allocates a total of P1.196 trillion for the government’s infrastructure programs for the year.

This includes P718.4 billion for the Department of Public Works and Highways (DPWH), while the Department of Transportation (DOTr) will receive P17.1 billion or 120.4% higher than its P75.8-billion budget in 2022.

Following two years of lockdowns brought about by the COVID-19 pandemic, the DBM proposed a 10.4% budget increase for the health sector to P296.3 billion.

The amount covers the budgets of the Department of Health (DOH) and the Philippine Health Insurance Corporation (PHIC), with P29 billion for the purchase of drugs, medicines, and vaccines, and over P19 billion for the salary and benefits of healthcare workers.

Some P23 billion was also allocated to the Health Facilities Enhancement Program (HFEP) to finance the acquisition of medical equipment and the construction, rehabilitation, and upgrading of health stations, health units, and health facilities.

The DBM also proposed a 39.2% increase in the budget of the Department of Agriculture (DA)—currently headed by Marcos—to P184.1 billion.

This covers P29.5 billion for irrigation services, in line with Marcos’ directive to prioritize the agriculture sector and transform it into a main driver of growth and employment.

The DBM allocated P197 billion for the Department of Social Welfare and Development (DSWD), as the administration seeks to continue programs such as the Pantawid Pamilyang Pilipino Program, among others.

Some P18.4 billion of the Department of Labor and Employment’s (DOLE) P26.2-billion budget will also be used for the Livelihood and Emergency Employment Program.

Aside from these, the administration allotted P453.1 billion for climate change expenditures, in cooperation with the Climate Change Commission.

There was also a 9% increase in the Department of National Defense (DND) budget to P240.7 billion, with the National Disaster Risk Reduction and Management Fund at P31 billion.

Pangandaman said that almost 90% of the budget “are available for the delivery of public services, programs and projects, which comprises economic and social expenditures, personnel services and general public services.”

“As emphasized by the President in his budget message, this administration shall endeavor to attain its macroeconomic and fiscal objectives by working towards a strong domestic demand, coupled with a comprehensive but harmonized socioeconomic agenda, economic resilience, fiscal discipline and investor confidence and continued favorable sovereign credit ratings,” she said.

“Lastly, allow us to note that debt incurred in recent years have been put into good use, such as on productive investments in infrastructure and human capital, as well as in recovery and health programs amid the pandemic. Debts incurred for the realization of projects are not plain and simple government expenses. They are investments that are made for the purpose of realizing a minimum required economic return,” she added.

Unprogrammed appropriations

The proposed P5.268-trillion 2023 budget also contains P588,162,480,000 unprogrammed appropriations.

Unprogrammed funds may be tapped if there are excess revenue collections, new revenue collections or those arising from new tax and non-tax sources, and approved loans for foreign assisted projects.

“Release of funds shall be subject to the submission of a Special Budget pursuant to Section 35, Chapter 5, Book VI of E.O. No. 292, s. 1987 and the following: (i) for excess revenue collections, issuance of a certification that remitted collections to the Bureau of the Treasury from a particular revenue source has exceeded the corresponding revenue collections target; or (ii) for new revenue collections, issuance of a certification that remitted collections identified were not part of, nor included, in, the original revenue collection targets reflected,” according to budget documents from the DBM.

“In the case of approved loans for foreign-assisted projects, the issuance of SARO (Special Allotment Release Order) covering the loan proceeds shall be subject to submission by the agency concerned of a Special Budget, together with the physical and financial plan, project profile, and a copy of the perfected loan agreement, as approved in the accordance with pertinent laws, rules, regulations, and guidelines issued thereon.” — BM, GMA News