Signs And Wonders


The buzzword today is inflation. And also discussed is what Russia’s invasion of Ukraine has set off to inflate fuel prices to breach the decade-high $120 per barrel, and dim the prospects of quick economic recovery of oil-dependent emerging markets including the Philippines. If it comes to pass, Singapore’s Tharman Shanmugaratnam’s “perfect long storm” scenario must be a nightmare to our current public policymakers who have barely three months and a half to make a difference.

The Duterte administration cannot afford to allow things to fall apart because this easily could prick the electoral balloons of those allied with Malacañang. If this is the inevitable outcome at the polls this May, the cracks are definitely beginning to show. The exodus has begun. Some broadsheets have reported a number of incumbent local government officials have switched loyalty, some declaring it to have been blessed by no less than President Duterte himself.

But we must all be pleased that some adults in the Duterte cabinet chose to transcend politics and put together a “transition plan to help the next administration manage the country’s debt.” At the least, managing the country’s serious debt problem should keep the new President busy for most of the next six years. This plan consists of a combination of improvements in tax administration to plug existing leaks, and updated tax proposals leveraging on previous reforms.

Just knowing how big is the Philippines’ debt problem should be enough to deter presidential aspirants from offering themselves to lead this Republic. The National Government (NG) debt, both external and internal, as of the end of January 2022 stood at $12 trillion or more than 60% of 2021 GDP. One can look at this level as more than twice the annual national budget. In the last two years alone, the Duterte government had to borrow P1.15 trillion to fund the pandemic response.

Definitely, it is costly to service the NG debt. For 2021, the NG paid nearly P430 billion in interest and almost P330 billion in principal obligation. Interest payments alone stood at 2.2% of GDP. The fiscal deficit ballooned from P660 billion or 3.4% of GDP before the pandemic to P1.7 trillion, more than two and a half times, or 8.6%, of GDP.

These obligations actually exclude those incurred by non-financial public corporations and financial public corporations, net of intra-debt holdings among them. In addition, contingent liabilities of government pension agencies have to be recognized as well because they are huge at nearly P10 trillion, should they become actual liabilities.

We cannot even take comfort in the argument made by some that such debt statistics are nowhere near those we faced during the debt moratorium in the 1980s. There is contrary evidence. In an article in the IMF’s Finance and Development in March 2022, the Fund’s Ceyla Pazarbasioglu and World Bank’s Carmen Reinhart reported that “many emerging markets and developing economies have encountered crises at lower debt levels than those prevailing in 2021” at the height of the pandemic.

The situation is not expected to improve soon because central banks in advanced economies are likely to begin monetary tightening. Already, the US Fed the other day lifted its key rate by a quarter of a percentage point, which to Bloomberg, “is an opening bid to curb inflation.” Six more hikes may be expected this year. On top of this plan, the US Fed also announced it would begin shrinking its $8.9 trillion balance sheet.

With higher interest rates, debt servicing becomes more acutely difficult for emerging markets like the Philippines.

The new occupant of the Palace and economic managers will have to grapple with the question of debt sustainability. In the same publication, former IMF chief economist Olivier Blanchard addressed this issue by saying that “debt becomes unsafe when there is a non-negligible risk that, under existing and likely future policies, the ratio of debt to GDP will steadily increase, leading to default at some point.”

Abstracting from Blanchard’s suggested approach, a strong economy with a good track record in revenue collection will find little incentive to expose itself to the credit markets for too much and for too long. It will have more favorable debt metrics. Blanchard puts a higher premium to debt service to GDP ratio rather than debt level to GDP ratio. This means the size of the debt service also matters, the rate of interest, and the maturity. Longer maturities can stretch out debt service payments and reduce annual allocation for debt service.

Precisely, these debt sustainability considerations make us averse to the fuel tax suspension following the unprecedented rise in petroleum prices globally. Lower public revenues will force the hand of the NG to borrow some more and bust the traditional debt metrics, reduce market confidence in our ability to manage our economy and, finally, push up even more our cost of borrowing. Equity considerations also dictate the better alternative of allowing everyone to share in the burden posed by higher fuel prices but part of the fuel tax could very well be assigned to subsidizing the marginal sectors in society including public transport. To his credit, President Duterte decided to keep the fuel tax.

In the same vein, we are expectant of two possible sources of public funds, both made possible by the rulings of our own Supreme Court. One is the NG collectible from the ill-gotten Marcos wealth. As of 2020, 34 years since the Marcoses were deposed and sent on exile to Hawaii, the Philippine government has recovered some P174.2 billion which was earmarked for the farmers through the agrarian reform program, the coco levy trust fund, and the indemnification of the human rights victims during the military dictatorship.

We have yet to recover P125.98 billion from the Marcoses, whose only son Bongbong is running for President of the Republic. Some 942 items of real properties worth P29.1 billion are still under court litigation. We are also running after 914 items of personal properties like corporations, aircraft, and paintings worth P96.9 billion. All in, P125.98 billion is 2.5% of our annual budget. Before the pandemic, that amount was some 20% of the fiscal deficit.

The next head of state should be more serious and forthright in ensuring all obstacles to full recovery are hurdled. Each day of delay puts us in debt’s way.

The next item to consider is the Marcoses’ estate tax liabilities to the NG of P203.819 billion. This should not sound impossible considering that the former First Lady Imelda Marcos has actually disclosed that many big companies are owned by their family. Since Bongbong Marcos is the administrator of the estate, and as a former public official who swore his allegiance to the flag and the Constitution, he should be the first person to settle his family’s tax liabilities.

The Bureau of Internal Revenue (BIR) has clarified that as early as 1993, 29 years ago, it had “already executed its final assessment” on the subject properties. Equally important is the clarification that “as early as 1997, the judgment on the tax case had bec              ome final and executory.” Hence, Marcos Jr. and his spokesman’s reasoning that the tax obligation could not be settled all these years because the amount is yet to be settled between the BIR and the Presidential Commission on Good Government, does not hold water. If Marcos Jr. cares enough for this country, all he needed to do is simply to admit the facts and pay their tax obligations to the government.

This collection case is live. No less than BIR Commissioner Caesar Dulay confirmed that “the BIR did send a written demand to the Marcos heirs on Dec. 2, 2021, regarding their tax liabilities.”

We cannot capture in clearer terms how far this P203.819 billion, plus the P125.98 billion in unrecovered ill-gotten Marcos’ wealth, could go in easing the fiscal stress. More important, so much could go a long way in delivering social services to our people and mitigating their poverty.

The next President of this Republic can truly demonstrate a serious pursuit of people-oriented, good governance policy if the gorilla in the room is no longer ignored. It has been choosing where to sit all these years.


Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.