MANILA-- President Rodrigo Duterte's bold infrastructure program will not saddle the Philippines with debt as economic growth is expected to outgrow borrowings, Budget Secretary Benjamin Diokno said Friday.
At a Palace briefing, the Cabinet official said that despite the PHP9-trillion (around USD 180 billion) Build, Build, Build program, the government expects the country's Debt-to-Gross Domestic Product (GDP) ratio to fall to 38.1 percent in 2022 from 40.6 percent in 2016.
"When you talk of fiscal sustainability, that's the accurate measure, debt divided by GDP," he said.
In economics, a low Debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.
Simply put, a lower Debt-to-GDP ratio indicates increasing fiscal sustainability and a stronger economy.
So with that kind of Debt-to-GDP ratio, I'm telling you, the Philippines will gain the envy of many developed and developing economies. Put differently, we expect the economy to outgrow its debt, he said.
Furthermore, he said that while the ambitious infrastructure program would be funded through a combination of taxes, non-tax revenues and borrowings, borrowing policies would reduce foreign exchange risks.
In borrowing, we will be guided by the 80-20 mix. Meaning, there will be a bias for domestic sources rather than foreign sources. This will minimize the foreign exchange risk, Diokno said.
The Budget chief pointed out that was the mistake of former President Ferdinand Marcos who was heavily dependent on foreign sources.
And because of a series of evaluation, like if you borrowed money at 4 to 1 (peso to dollar rate), and you have to pay it at 12 to 1, that's 7 to 1 and eventually 45 to 1, that will be disastrous. So that's a big mistake. That is what we call foreign exchange risks, he explained.
He added that the Philippines has a hefty gross international reserves -- due in part to a steady inflow of dollar remittances from overseas Filipino workers (OFWs) and the BPO industry -- so that the country will not run out of foreign exchange to service its foreign debt in times of domestic or international crisis.
In fact, there is right now a hefty gross international reserves. That is the stock of foreign exchange that is kept by Bangko Sentral ng Pilipinas (BSP) and that is equivalent to 11.7 percent of our imports requirement. The received doctrine is if you have a dollar reserves equivalent to three months of your import requirement, you're okay. But we have close to one year of our import requirement so we are comfortable, he said.
Now, The continuing decline of our Debt-to-GDP ratio suggests that the fear that we will be heavily indebted once more like what happened during the Marcos years and the first, the early years of the Cory Aquino administration is not going to happen, is unfounded, Diokno said.
Source: Philippine News Agency