More than P288 billion in loans from multilateral lenders in the pipeline on top of a supplemental 2020 budget to be requested from Congress will boost the Philippines’ war chest against COVID-19, Finance Secretary Carlos G. Dominguez III said on Wednesday (April 7).
In a television interview with CNBC, Dominguez said the Philippine government was “very active” now in negotiations to borrow from the Manila-based Asian Development Bank (ADB), the Beijing-based Asian Infrastructure Investment Bank (AIIB), and the Washington-based World Bank “since they have the lowest interest rates to us.”
Once the Philippines has exhausted official development assistance (ODA), it will also tap offshore commercial markets, Dominguez added.
The Philippines had plans to issue dollar-denominated debt paper as well as renminbi-denominated “panda” bonds and yen-denominated “samurai” bonds after successfully selling euro bonds at the start of the year.
Dominguez said that the government would increase the share of debt to the economy to “slightly over 46 percent” during the onslaught of the COVID-19 pandemic.
At present, the Philippines’ debt-to-gross domestic product (GDP) ratio stood at 41 percent, down from above 54 percent a decade ago, Dominguez noted.
Before the COVID-19 pandemic, the government had programmed a record P1.4 trillion in borrowings for 2020, with a mix of 75-percent domestic and 25-percent external, which would change as borrowings will be ramped up.
The executive branch will also ask legislators for a “higher budget for the rest of 2020, if needed, and most likely for 2021” as well, Dominguez said.
The Bayanihan to Heal as One Act already allowed realigning P275 billion from the P4.1-trillion 2020 national budget besides tapping cash, funds and investments of GOCCs.
Last December, the Cabinet-level Development Budget Coordination Committee (DBCC) agreed to pitch to Congress a record-high P4.64-trillion cash budget for 2021.
Budget Secretary Wendel E. Avisado told the Inquirer on Wednesday that the DBCC and the Economic Development Cluster (DBCC) will have to first meet to determine how much more supplemental budget for 2020 and additional appropriations for 2021 would be sought from Congress, which holds the power of the purse.
Asked if raising taxes may also be considered to jack up revenues for the budgetary requirements, Dominguez replied: “Not immediately, but certainly down the road. I think maybe in a year or two, that might be required—you know, all this money [being spent for COVID-19 response] has to be paid somehow.”
“But we’re not going to do that immediately. We have a lot of sources first. And as I’ve said, our multilateral agencies and the commercial markets can provide those funds,” he said.
Also, Dominguez pointed out that the Philippines had been increasing revenue collections by 15 percent since 2010, such that the share of revenues to GDP rose to a 23-year high of 16.9 percent last year.
The Tax Reform for Acceleration and Inclusion (TRAIN) Act that took effect in 2018 jacked up excise on consumption to compensate for lower and rationalized personal income tax rates.
So-called sin taxes on cigarettes, e-cigarettes and alcoholic drinks were also further hiked this year to finance the universal health care program.
But as COVID-19 roughed up businesses and livelihoods, the Department of Finance (DOF) had estimated forgone revenues this year would amount P286.4 billion if GDP posted zero growth, or a bigger P318.9 billion if the economy contracted by 1 percent.
“We have a lot of room to maneuver here. The policies of the President have left us with ample fiscal headroom. And we are now responding very quickly to this coronavirus,” Dominguez said.
He added that the strong GDP growth averaging 6.3 percent during the past 10 years and the current low inflation environment augured well for the fiscal space.
Dominguez said that so far, the government had provided a total of about $23 billion or more than P1.1 trillion—equivalent to 5-6 percent of GDP—in support to the sectors affected by the ongoing lockdown to contain the COVID-19 disease.
These included $6 billion in cash aid to vulnerable households and displaced workers, $650 million to medical front-liners, and $16.4 billion in support to the economy by the lower interest rates and liquidity unleashed by the Bangko Sentral ng Pilipinas (BSP).
Dominguez added that the Bayanihan law provided for loan relief during the lockdown period.
According to Dominguez, the funding for the law was good the months of April and May.
“While we were not sure how long the [domestic] COVID-19 [outbreak] will last, we think the estimate would be until around the end of May. So we are ready until the end of May,” Dominguez said.
However, Dominguez admitted that the Philippines was ‘“caught unaware” by the pandemic.
“This surge in infection rate is really unplanned for. So we are short with a lot of PPEs [personal protective equipment], ventilators and such… So we are beefing up our manufacturing sector and directing it to producing more PPEs in the Philippines, as well as increasing our imports of the same,” Dominguez said.
Edited by TSB
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