REVIVING efforts to compel the government to “exercise prudence in spending and strengthen its fiscal management”, Senate President Pro Tempore Ralph G. Recto is bent on pushing passage of a long-awaited law imposing caps on foreign and domestic debts.
In filing Senate Bill (SB) 858 in July, Recto proposed to set limits to borrowings, saying this will provide opportunities for better prioritization of programs and projects as it has to spend within available resources.
Recto’s SB 858 seeks to set a ceiling to government’s indebtedness in a bid to “ensure macro-economic stability and sustainable growth”, among others.
The senator recalled that the Philippines’s total outstanding debt as of 2015 added up to P5.9 trillion, of which P3.88 trillion is domestic and P2.07 trillion is foreign.
He explained that the rising total outstanding debt is attributable to increasing domestic and foreign obligations, as well as the impact of foreign exchange fluctuations.
According to Recto, the huge budget deficit results in “seemingly relentless borrowings” to cover expenditures for needed infrastructure and services. He noted that an International Monetary Fund study affirmed the hypothesis that higher debt service crowd out public investments.
Recto aired concerns that “left uncontrolled, the public debt can balloon to a magnitude that can wreak havoc on the fiscal balance.”
“This can have a negative impact on the economy as a whole and with grave consequence on the quality of life of the people,” the senator warned.
To avert this scenario, Recto’s bill proposes a cap on government debts at 50 percent of the GDP.
He pointed out that the Philippines’s debt-to-GDP ratio from 2010 to 2015 stood at 52.41 percent, 51.0 percent, 51.5 percent, 49.2 percent, 45.4 percent and 44.8 percent, respectively.
The senator noted that, although the debt-to-GDP ratio went down to 44.8 percent in 2015, “the proposed cap will simply secure the prevention of potential negative impacts of high public debt on economic activity.”
Recto suggested that the debt ceiling may be breached “only when there are extraneous events beyond the control of the government subject to presidential certification and approval of Congress”.
He said fiscal managers, historically, never met original program targets set forth in the annual national budget.
“Every year, they propose to Congress a formula on how they would finance the proposed expenditure program for the incoming year. but at the year, the actual revenue collection fall short of numbers in the Budget of Expenditures and Sources of Financing,” Recto said.
The senator added the remedial legislation proposed in SB 858 will also put a cap on the borrowings of the national government by mandating Malacañang to go back to Congress and seek authority to borrow more in the event government’s fiscal deficit target submitted by the President is breached before the end of the fiscal year.
“It is essential that Congress should be closely guided by a borrowing program developed by the President to restore fiscal discipline before the country falls into another debt trap,” Recto said.
The Senate leader said the bill, once enacted into law, also aims to compel economic managers to be more accurate and prudent in their revenue targets and expenditure programs. “Likewise, this bill will allow Congress to assert its powers of the purse.”