Neda, Ibon agree PHL debts very far from Sri Lanka level

THE National Economic and Development Authority (Neda) and local think tank Ibon Foundation Inc. both believe that the Philippines is not a “Sri Lanka,” a country that recently defaulted on its debts. 

In a virtual briefing at the Kapihan sa Manila Bay on Wednesday, Socioeconomic Planning Secretary Karl Kendrick T. Chua said Sri Lanka is a different economy from the Philippines. Chua emphasized the country has strong macroeconomic fundamentals and still enjoy a favorable credit rating.

Meanwhile, according to nongovernment group Ibon, Sri Lanka’s external debt of $56 billion is around 69 percent of its gross domestic product (GDP) of $81 billion while the Philippines’s external debt is at $106.4 billion or 27 percent of the country’s $394-billion GDP. Ibon also said Sri Lanka’s population of 22 million is just a fifth of the Philippines’s 110 million.

“Super malabo [Philippines’s chances of becoming a Sri Lanka] because we are two different countries,” Chua said. “We have strong macroeconomic fundamentals; our credit ratings are the highest ever. In fact, we can borrow very cheaply. We have done all the reforms needed to secure our future. We have to continue that and not reverse any of them.”

Chua said the pandemic is the primary culprit for the surge in Philippine debt. Before Covid-19, the country’s debt-to-GDP level was only at 39 percent, which he said, was a testament to the Philippines’s ability to manage its fiscal resources.

The debts the country had to secure allowed the government to respond to “unprecedented times” and, thus, “required unprecedented borrowings.” These were spent on securing vaccines and providing subsidies to both households and firms during the pandemic.

“We have a very strong economy that can bring down that debt level. And we also need to manage our fiscal resources and raise revenues,” Chua said. “Raising revenues [will]primarily [be] driven by making the economy grow stronger, then supported by tax policy and administration measures. So that is how over the medium term we will bring down our debt levels.”

Ibon Foundation Executive Director Jose Enrique A. Africa said that while pundits are quick to judge the incoming administration’s ability to be fiscally prudent, due to the “Marcos dictatorship-driven Philippine economic and foreign debt crisis of the 1980s,” the country has not reached the point of default.

According to Africa, this is largely due to remittances from Overseas Filipino Workers (OFWs) and the business process outsourcing (BPO) sector that provide the Philippines with a steady supply of foreign exchange.

A steady stream of foreign exchange was supplied through remittances, which reached $31.4 billion in 2021, and BPO revenues amounting to $27 billion. Foreign investment, Ibon said, has also reached $10.5 billion and helps prevent the country from being affected by foreign exchange swings.

“The immediate triggers of its [Sri Lanka] debt crisis were the loss of foreign exchange earnings from the collapse of tourism and exports upon Covid-19, and then the spiking of global fuel and food prices when the Ukraine-Russia conflict erupted,” Africa said. “Cuts in imported inputs choked domestic agricultural and industrial production, caused shortages and power failures and made prices soar.”

However, Africa warned that despite this, the Philippines remains a backward pre-industrial economy. There are millions of Filipinos working abroad because there isn’t enough work in the country for them, he added.

Africa further explained there are BPO revenues because so many of the Filipino “youth provide their labor cheaply in this no-value-added work for want of any Filipino high-technology industries to go into.” He said foreign investors use the foreign exchange to pay for their low value-added import-intensive operations.

“What are the lessons to be learned from Sri Lanka? So-called free market globalization policies, such as what the IMF [International Monetary Fund] has been peddling, won’t develop the national economy,” Africa said. “Many and grandiose infrastructure projects give an endorphin rush but won’t be enough to develop domestic agriculture and manufacturing—and certainly not under an obsolete globalization policy regime.”

He explained that in the case of the Philippines, it’s also worth asking: “Is maintaining a supposedly strong macro financial situation an end in itself? Or does thinking it actually straitjackets the country’s development?”

Africa added that more people “should be perplexed that despite many years now of claiming fiscal and financial stability, the economy is still underdeveloped, joblessness is still widespread, and poverty is still entrenched.”

Last week, a report from Bloomberg News published in the BusinessMirror stated that Sri Lanka fell into default for the first time in its history due to an economic meltdown, which has already “prompted mass protests and a political crisis.”

Credit rating agencies such as Fitch Ratings recently downgraded Sri Lanka to “restricted default.” (Read the story here: https://businessmirror.com.ph/2022/05/20/sri-lanka-falls-into-debtdefault-for-1st-time-ever)

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