POSTSCRIPT / March 6, 2016 / Sunday


Opinion Columnist

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Each baby is born with P62,235 debt

EVERY BABY born during the term of President Noynoy Aquino is welcomed with a debt burden of P62,235.26 plus P4,251 in government-guaranteed loans.

A coalition of sectoral groups monitoring national debt and government finances says President Aquino will leave his successor with P6.4 trillion of government outstanding debt, P4.16 trillion of which were borrowed during his term.

Analyzing official records, the Freedom from Debt Coalition (FDC) reports that President Aquino has even eclipsed former President Gloria Arroyo as the biggest borrower among Philippine leaders, over a full term, from 1986 to the present.

This debt problem, the FDC says, “has resulted in the government’s failure to meet its obligations to the people, or social debt as a percentage of the gross domestic product.”

The Constitution says in Section 20 of Article VII (Executive Department): “The President may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as may be provided by law. The Monetary Board shall, within 30 days from the end of every quarter of the calendar year, submit to the Congress a complete report of its decision on applications for loans….”

Now the FDC is asking the Aquino administration where its P4.16-trillion borrowings went and how the loans contributed to improving the lives of the people. That mountain of debt in question is even bigger than the current P3-trillion national budget.

It says the administration should explain how the loans were contracted, where they went, how they were used and the status of the programs and projects where they were supposedly spent.

The FDC urges the Aquino administration to repeal the Automatic Appropriations Law for debt servicing, which was enacted through Presidential Decree 1177 during Marcosian martial rule. The Philippines is the only country with such a rider in its government budget, according to Dr. Ed Tadem, FDC president.

Tadem said President Aquino should explain why an average of 48.2 percent of government borrowings from 2011 to 2015 automatically went to amortizing existing debts, while an annual average of 15.6 percent of the national budget were allocated first to interest payments before appropriations for programs, projects and activities.

For the past 30 years, he said, automatic appropriations for debt servicing “has resulted in an average of 27.21 percent of annual public revenues automatically earmarked for interest payments, while principal amortization has eaten up an average of 67.61 percent of new borrowings.”

BSP reports 3% drop in foreign debt

BUT the Bangko Sentral ng Pilipinas reports a decline of 3 percent at end-March 2015 in the outstanding external debt of the country at US$75.3 billion compared to US$77.7 billion of the previous year, down by US$2.4 billion.

BSP Gov. Amando M. Tetangco Jr. attributed the decline to net repayments ($2.0 billion), mainly by banks. He said negative foreign exchange (FX) revaluation ($220 million) arising from the strengthening of the US dollar against other currencies, and an increase in residents’ investments in Philippine debt papers ($100 million) also contributed to the decline in the debt stock.

External debt refers to all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics, such as the Balance of Payments.

On a year-on-year basis, the debt stock also saw a decline of $3.6 billion (or 4.6 percent) from $78.9 billion in March 2014 due to: (a) negative FX revaluation adjustments ($2.2 billion); (b) net repayments ($1.9 billion); and (c) previous periods’ adjustments (negative $220 million) due to audit findings as well as late reporting of transactions.

Short-term external debt comprised the 17.4 percent balance of the debt stock, consisting largely of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposits of non-residents.

Public sector external debt stood at $39.1 billion (or 52.0 percent of total debt stock), slightly lower than the $39.3 billion level (50.7 percent) as of end-2014 due mainly to negative FX revaluation adjustments ($209 million) as the US dollar strengthened against most currencies. Private sector debt also declined to $36.2 billion from $38.3 billion a quarter ago due largely to the net repayments of bank liabilities ($2.9 billion).

Tetangco explains pressure on debt level

TETANGCO said the downward pressure of these developments on the debt level was mitigated by the rise in non-residents’ investments in Philippine debt papers ($704 million).

He explained: “Key external debt indicators were observed to have remained at very prudent levels in the first quarter of 2015. Gross international reserves (GIR) of $80.5 billion as of end-March 2015 represented 6.1 times cover for short-term debt under the original maturity concept compared to 4.9 times and 4.7 times as of end-December and March 2014.

“The external debt ratio (a solvency indicator), or outstanding external debt expressed as a percentage of gross national income (GNI), continued to exhibit an improving trend and was recorded at 21.5 percent for the first quarter of 2015 from 22.5 percent last quarter and 23.9 percent a year ago.

“The same trend was observed using GDP as denominator, as the debt stock dropped by $2.4 billion vis-à-vis the 5.2 percent growth of the Philippine economy in the first quarter of 2015. (The ratio is an indicator of the country’s capacity to service foreign obligations.)

“The debt service ratio (DSR), or total principal and interest payments as a percentage of exports of goods, receipts from services and primary income, is a measure of the adequacy of the country’s FX earnings to meet maturing obligations. The ratio further improved to 6.3 percent in March 2015 from 6.4 percent in December 2014 and 7.3 percent in March 2014 due to higher receipts and lower payments during the year.”

Tetangco said the country’s external debt remained heavily biased towards medium- to long-term (MLT) accounts (those with maturities longer than one year) which represented 82.6 percent of total. This means that FX requirements for debt payments are well spread out and, thus, more manageable.

(First published in the Philippine STAR of March 6, 2016)

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