public borrowing

1. PUBLIC
BORROWING

2. Public Borrowing
 is money the government borrows to fund public spending, the total
amount of money that a country's central government has borrowed to fund
its spending on public services and benefits.
 In the modern state perspective, the needs constantly increase; therefore,
the state has to spend more to meet these needs. Public expenditures are
generally met by ordinary public revenues such as taxes, duties, fees,
parafiscal revenues, property and enterprise revenues, taxes, and
penalties. However, the state is faced with the public sector deficit due to
reasons such as large infrastructure investments, war, development
financing, natural disasters, economic crises, budget deficits, as well as the
ever-increasing ordinary public expenditures. To overcome this situation,
they refer to borrowing.


3. Public Debt
 the total of the nation's debts: debts of local, state, and national
governments; an indicator of how much public spending is
financed by borrowing instead of taxation.

4. CLASSIFICATION
OF PUBLIC DEBTS

5.  Short-term public debts (floating debts) refer
to debts up to 1 year. In short-term borrowing,
treasury bills and treasury guaranteed bond are
used.
 Medium-term public debts refer to debts
ranging from 1 to 5 years.
 Long-term public debts refer to debts more
than 5 years. The instrument of long-term
borrowing is the government bond. These
debts are provided from the capital markets
and have a higher interest rate than the interest
rate of short-term borrowing. Long-term debts
are classified as redeemable debts and
irredeemable debts.

6.  Domestic/Internal borrowing refers to a
country’s borrowing from its own national
resources. This borrowing has no effect on
increasing or decreasing national income.
Examples: BSP loans,treasury securities
 Foreign/External borrowing refers to the
resources provided from a foreign country that
is repaid with principal and interest at the end
of a certain period. External debt has an
increasing effect on national income when it is
taken and vice versa has a decreasing effect
on national income when it is paid. Examples:
IMF loans, WB loans.

7. As of November 2020, the general government
debt of the Philippines amounts to ₱10.13 trillion
($210,709,166,300). The debt-to-GDP ratio,
which reflects the ability to pay obligations, will
jump from 39.6 percent in 2019 to 53.9 percent in
2020 and 58.1 percent in 2021.
Domestic debt: ₱7.19 trillion
($149,555,666,900) (November 2020
External debt: ₱2.94 trillion
($61,153,499,400) (November 2020)
Total debt: ₱10.13 trillion
($210,709,166,300) (November 2020)

8.  Voluntary debts refer to the debts that are lent
to the state by its own will and desire.
 Obligatory debts refer to the debts which are
lent by forcing to take the bonds issued by the
government. These debts are applied in times
of war, natural disaster, or economic crises. In
itself, it is classified as the debts taken by full
compulsion, the debts taken by the threat of
forcing, the debts taken by creating the
necessary savings, and the liabilities taken by
the moral coercion.

9.  Direct- made directly from lender to
borrower, rather than a third party
(National and Local)
 Guaranteed- promise by a one party
to assume the debt obligation of a
borrower
 Non-guaranteed- not guaranteed for
repayment by a public entity because
it is payable solely from pledged
specific for earnings of revenue
(utilities, sewage disposal plants, toll
bridges, etc.)

11.  Productive Debts
If the debts are used in construction, such as
railways, power stations, and irrigation projects,
which contribute to the productive capacity of the
economy. By this way, productive debts provide a
constant flow of income to the state. The state
generally pays the interest and principal debt
amount from these projects’ revenues.
 Unproductive Debts
If the debts are used in the area such as war,
famine relief, social services, etc., which do not
contribute to the productive capacity of the
economy. denote. The state generally pays the
interest and principal debt amount from taxes;
therefore, these debts are a burden on the
society.

12. ORIGIN OF
PUBLIC
BORROWINGS

13. Ancient and medieval times
 Governments required funding, as do modern states, but they didn’t
borrow “publically” in the sense of drawing funds from a wide populace
and making it ultimately responsible for servicing the debt (paying
principal and interest), as a form of deferred taxes.
 Public borrowing became common, but initially involved loans in kind
(commodities) instead of in money, for shorter rather than longer periods,
and for war or idiosyncratic purposes rather than as a permanent funding
source.
 no debt instruments existed in the forms so familiar to us today – namely,
tangible securities traded in secondary, liquid markets with prices and
yields visible on public exchanges. This form of sovereign obligation
emerged in the late seventeenth century, when the rule of law, sanctity of
contract, and parliamentary checks on monarchical power took hold, after
Britain’s Glorious Revolution in 1688

14. Classical Theory (Mercantalist Period)
 European economists between 1500 and 1750 are considered mercantilists.
 Era of merchant capital, dependent on connections between social and productive
systems.
 Theory that believes in the essence of “ Laissez-fair policy
 Theory that has a pessimistic point of view.Its supporters believe that government
borrowing is invariably wasteful, ruinous to prosperity, and even morally unjust
 Mercantalism is an economic practice by which governments used their economies to
augment state power at the expense of other countries.
Adam smith
One of the greatest critics of mercantilism. He was
strong in emphasizing the disadvantages of
borrowing and expostulate on the advantages of
the balanced budget during the years of capitalism.

15. Neo-ClassicalTheory
 Extension of Classical Theory (later part of 19th century)
 Formed by A.C. Pigou through his book “Economics is Welfare”
 This theory believes that the economic system functions in response to
the instructions of the market the ultimately the consumer.
Originally published in 1920. Alfred C.Pigou
reconceptualized economics as a science of
economic welfare in the course of which he
developed the first systematic theory of
market failures.

16. Keynesian Theory (Modern Theory)
 It was during the time of John Maynard Keynes that the idea of public
borrowing was introduces during the Great Depression mainly as a
compensatory tool in times of economic stability.
 States that the increase in public debt through the multiple effects would
raise the National Income.
 Borrowing for capital generation purposes is necessary like setting up public
enterprises which will contribute to a productive output.
 John Maynard had proposed public borrowing as a war financing to England
 It is based on the assumption of fully developed economies undergoing
cyclical difficulties. In LDC’s productive capacity is not yet fully developed
John Maynard Keynes
“In order to keep people fully
employed,governments have to run
deficits when the economy is slowing”

17.  After the World War II, public borrowing indicated both significant increase
and structural changes due to on the one hand the repair works of the
countries affected by the war, on the other hand, the financing needs of
developing countries
 In the following period, the borrowing process are no longer interstate and
have started to gain a new dimension by establishing international
organizations such as International Monetary Fund (IMF), World Bank
(WB), International Finance Corporation (IFC), International
Development Association (IDA), European Investment Bank (EIB),
and Islamic Development Bank (IDB).

18. Development Finance
The expenditure demands of development are expensive and urgent.
The only immediate option recommended by experts is borrowing,
specifically foreign borrowing. Musgrave and Musgrave point out that
in development finance, foreign borrowing is preferable. “Public
investment which is financed by (local) borrowing does not add to
capital formation if it merely diverts funds otherwise available for
private investment. If borrowing is from abroad, additional resources
become available as borrowing is accompanied by increased
imports.”

19. Importance of FOREIGN BORROWING
■ It may results in inflow of additional resources
■ covers up foreign exchange deficiencies due to development
spending
■ facilitates the inflow of technical and managerial expertise

20. International Monetary Fund
An international organization of 184 member countries. It was established to
promote international monetary cooperation, exchange,stability, and orderly
exchange arrangements; to foster economic growth and high levels of
employment; and to temporary financial assistance to countries to help ease
balance of payments adjustment.

21. The World Bank
Originated from IBRD- International Bank Reconstruction and Development.
The goal of this was to assist in the recovery and reconstruction of countries
devastated by WWll. By 1959 the bank shifted from reconstruction to
development lending with focus on LDC’s. During the 1950’s loans to LDC’s
were infrastructure related. Later on it widened its scope to include mining,
agriculture,water, education,etc. By the end of the 90’s , total loans and
credits to LDC’s amounted to $2 trillion.

22.  The World Bank (WB or the Bank) has been a partner of the
Philippines for 75 years, providing support to the Philippines’
development programs and projects.
 Since 1945, the World Bank Group has mobilized funding,
global knowledge, and partnerships to support the
Philippines’ efforts to alleviate poverty, upgrade infrastructure,
improve health, nutrition, and education, strengthen resilience
against climate change and natural disasters, promote peace,
and enhance global competitiveness.
 The first World Bank-supported project in the Philippines was
the Binga Power Project in 1957 which funded the
construction of a hydroelectric power station in Benguet to
meet the growing demand for electricity in Luzon following the
Second World War.
 Other projects:renewable energy projects (such Angat Power
Project in Bulacan Province and Maria Cristina Falls Hydro
Power Expansion Project in Iligan City, Lanao del Sur),
irrigation (Upper Pampanga River Irrigation Project, including
Pantabangan Dam), and water supply (Manila Water Supply
Project). Most of these projects are still operational until
today.

23.  From 1968 to 1981, WB president Robert McNamara focused the Bank’s attention on poverty
and the sources of underdevelopment. Under his leadership, the Bank significantly expanded
lending in sectors such as agriculture and urban poverty as well as social sectors like education
and health.
 In the ‘70s, the WBG supported 53 projects, mostly in agriculture, fisheries and forestry;
irrigation and drainage; transport (mainly roads and ports); and water supply and sanitation.
One of them was the Magat River Multipurpose Project.
 In the 1980s, they funded the Angat Water Supply Project to meet the expected water demand
in the Metropolitan Waterworks and Sewerage System (MWSS) service area until the year
2000. The Bank also funded the Bacon Manito Geothermal Development Project, one of the
major sources of renewable energy in the Philippines, operating several power plants with a
combined capacity of about 150 MW of electricity for the country’s needs.
 In the ‘90s, the Bank’s assistance focused energy, financial sector development, public
administration, agriculture and education. (Leyte-Cebu Geothermal Project, Leyte-Luzon
Geothermal Project)
 the Bank funded the Szopad Social Fund Project in 1998 to increase the access of the
population in the poor and most conflict-affected areas of the Special Zone for Peace and
Development (SZOPAD) to basic economic and social infrastructure, services, and
employment opportunities, through speedy financing of subprojects for local development
initiatives. This project marked the start of the Bank’s engagement in peace and development
in the country, leading to the establishment of the ARMM Social Fund Project in 2002,
Mindanao Trust Fund in 2005, and the Bangsamoro Normalization Trust Fund in 2021.

24.  Subic Bay Freeport Project. The development goals of the project were to: a) improve existing
infrastructure; b) improve access to the area for industrial, commercial and passenger traffic; c)
maintain the SBF asset base, including protection of the environment; and d) strengthen the
capacity of the Subic Bay Metropolitan Authority (SBMA) to manage and administer the facility.
 2000’s, World Bank support expanded for social protection, community-driven development,
peace-building in Mindanao, education, rural development (including agrarian reform), and
water supply and sanitation. World Bank support expanded for social protection, community-
driven development, peace-building in Mindanao, education, rural development (including
agrarian reform), and water supply and sanitation. Through the Mindanao Trust Fund, the Bank
in collaboration with other development partners supported community projects to aid recovery
in conflict-affected areas in Mindanao. The Social Welfare and Development Project which
supported the country Pantawid Pamilyang Pilipino Program or 4Ps rapidly expanded until the
present.
 The country has built on the 4Ps to respond better to natural disasters and other shocks. In
response to Super Typhoon Yolanda (international name Haiyan) in 2013, the DSWD provided
additional subsidies to 4Ps beneficiaries to mitigate the impact of the calamity. Similarly, during
the COVID-19 pandemic, the government was able to quickly deliver social assistance to 4Ps
beneficiaries who are among the poorest and most vulnerable in Philippine society.

25. The Philippines in the early 80’s was one of the
top seven debtor countries and had a Balance of
Payment (BOP) deficit of $ 1.135 billion, a trade
deficit of $2.805 billion and a cash deficit of P 14.4
billion. Negotiations with IMF were formidable ,
such as reduction of cash deficit to P9 billion,
further restructuring of tariff rates and further
devaluation of the peso.
“ the World Bank has used its financial
power to promote the interests of
private, international capital in its
expansion to every underdeveloped
world”

26.  The Philippines was the World Bank’s top
borrower in fiscal year 2021 as the country
needed more money for its fight against
COVID-19 and efforts to narrow down the
biggest pandemic-induced output gap in the
region.
 The World Bank’s annual report for fiscal year
2021 (July 1,2020 to June 30,2021) showed
that the commitments of its lending arm, the
International Bank for Reconstruction and
Development (IBRD), to the Philippines during
the period was the highest among all country-
borrowers at $3.07 billion across eight
operations or loans extended by Washington-
based lender. This was nearly double the
$1.87billion in 2020 .

27.  As such, the Philippines surpassed India which was the biggest borrower in fiscal yea
2020. India’s borrowing in 2021 was $2.65 billion, down from $4.58 billion in 2020.
 IBRD’s other large country-borrowers:Indonesia ($2.2 billion), Morocco ($1.8 billion),
Mexico ($1.73 billion), Turkey ($1.5 billion), Colombia ($1.35 billion), Brazil ($1.33
billion), Argentina ($1.24 billion) and China ($1.23 billion).
 In its 2021 annual report, the World Bank noted that the Philippines had the biggest
output gap of 8.4 percent in the East Asia and Pacific region in 2020. The output gap
reflected the difference between prepandemic economic potential against actual
performance amid the pandemic.
 Besides health-care and vaccine financing, the World Bank said it had also extended
loans for the Philippines’ conditional cash transfers, customs modernization, disaster
resilience and recovery, peace-building in the Bangsamoro Autonomous Region in
Muslim Mindanao and various agriculture projects.
 The World Bank’s near-term lending pipeline for the Philippines included 11 upcoming
project loans totaling $2.54 billion, some of which will be up for board approval before
the end of this year while most are scheduled for 2022.

29. GLOBAL FINANCE
STRUCTURE: IMPACT
ON THE PHILIPPINE
EXTERNAL DEBT

30.  A government or a company will want to borrow from an overseas lender for a
variety of reasons. One reason is that local debt markets may not be capable
of meeting their financing needs, especially in developing countries. Additionally,
foreign lenders may simply offer more favorable terms. For countries with low
income, in particular, borrowing from foreign institutions is a necessary choice
since it will provide financing that it would otherwise not be able to obtain at
competitive rates and flexible periods of repayment.
 Excessive amounts of foreign debt will hinder countries’ capacity to invest in their
financial prospects, whether through education, infrastructure, or health care,
because their small income is spent on repayment of loans. It is a challenge to
economic development in the long term.
 External borrowing is not a negative issue for a country until it can generate higher returns than
the cost of borrowing, but it becomes vicious if it is not used properly and prudently. External
borrowing would be enhancing capacity and output growth hence, making the debt productive
and justifiable. On the contrary, this debt can create fiscal imbalances and excessive foreign
borrowing that may make the country more vulnerable to different shocks and crises. It reduces
the effectiveness of fiscal policies and limits the ability of the monetary authority to raise interest
rates for monetary policy purposes, due to its effect on the budget deficit and debt.

31. Impact to Economy Growth:
 External indebtedness poses important challenges for developing countries,
particularly in a context of floating exchange rate systems, open capital accounts
and fast integration into international financial markets.
 Economists have long noted several macroeconomic channels through which
debt can adversely impact medium- and long-run economic growth.
 High public debt can negatively affect capital stock accumulation and economic
growth via heightened long-term interest rates, higher distortionary tax rates,
inflation, and a general constraint on countercyclical fiscal policies, which may
lead to increased volatility and lower growth rates.
 Ineffective debt management, coupled with shocks such as a fall in oil prices or
an extreme economic recession, may also cause a debt crisis. This is also
compounded by the fact that foreign debt is generally denominated in the
currency of the nation of the issuer, not that of the borrower. This means that if
the economy of the borrowing country weakens, it becomes even harder to pay
off such debts.

32.  The Philippines was hit more severely by external shocks than most debtor
countries. Yet at the same time, the debt crisis that occurred in the Philippines
was not simply a result of the second oil price shock and the rise in world real
interest rates. The Philippines had developed a borrowing momentum that could
not be sustained, and the country would have eventually come to an external
crisis even if the shocks of the 1980s had not been there to hurry the process
along.
 two fundamental economic difficulties:
* Philippines failed to develop self-sustaining growth that would have eased
the burden of servicing its external debt.
*The country failed to shift resources towards the traded goods sector, as was
required both by its increasing debt burden and by its declining terms of trade.

33. Public Debt and Macroeconomy
 Economists’ views are divided on the impact of public debts on the
macroeconomy. Proponents of the Ricardian equivalence argues that
increased government borrowing may have no impact on consumer
spending because consumers, by being rational, will expect tax cuts or
higher spending that will lead to future tax increases to pay back the
resulting increase in debts.
 The Ricardian equivalence posits that consumers will be indifferent to a tax
cut as this will be temporary and will be offset by higher taxes to counter the
increased expenditure requirements resulting from T-bills maturing in one
year.However, there are arguments against the Ricardian equivalence as
follows:

34.  Consumers may not be as rational as initially thought. Some consumers may
not anticipate that tax cuts will lead to tax hikes in the future. Thus, tax rebates
are usually included in fiscal stimulus packages during an economic downturn.
 Tax cuts can boost growth and diminish borrowing requirements. Tax revenues
fall in periods of slower economic growth, while government spending may
increase through providing heightened social services such as higher spending
on unemployment benefits. Some argue that decreasing taxes in periods of soft
economic activity could encourage spending and heighten economic activity,
which could improve the fiscal position and reduce the need for future
borrowings to offset the tax cuts.
 Public debts could pump-prime the economy without crowding-out the private
sector. During periods of weaker economic activity and uncertain conditions, the
private sector may choose to remain in the sidelines. The government’s task,
therefore, is to stimulate aggregate demand by spurring economic activity.
 4. Pump priming activity could generate multiplier effect. The increase in output
associated with pump-priming activity of the government could be higher relative
to government spending.

35. Public Debt Sustainability
 Public borrowings – like any other debt – carry costs, particularly the interest
expense of the funds borrowed. The debt servicing burden – i.e., principal plus
interest, which are spread throughout the life of the debt – could comprise a
significant chunk of the annual government budget.
 Debt management should, therefore, ensure that public debt programs are not
bunched-up (by spreading the maturity profile to avoid illiquidity) nor excessive
(by possibly setting a debt ceiling to avoid insolvency). When countries are
unable to service their debt obligations, a credit event or default occurs.
Countries rarely default on domestic currency debt since they have the option
of printing more money.
 Countries facing a liquidity shortage may need assistance from multilateral
institutions to counter the temporary liquidity squeeze. Meanwhile, highly
indebted countries may need to implement strong, credible, and arguably
unpopular fiscal consolidation.Multilateral institutions, such as the IMF, as well
as credit rating agencies and private sector institutions, do regard the fiscal
sector, in general, and public debt conditions, in particular, as important
indicators in gauging the country’s economic and political situation

36.  Debt sustainability is a major issue, particularly for countries facing higher public
debts, such as what most advanced economies are currently
experiencing.These countries are vulnerable to rollover risks as maturing debt
obligations could become more expensive to refinance considering that
investors will demand significant premium to compensate for the greater risks
that they will be assuming.
 The punitive action of the market through higher borrowing costs will make it
more difficult for these countries to service their obligations, creating a vicious
cycle of debt trap. This could be aggravated when governments planning to
undertake unpopular measures that will increase revenues and/or reduce public
expenditures face political backlbacklash that render them not politically feasible.
 For advanced economies where monetary authorities embarked on massive
bond buying programs to help prop up the domestic economy, the management
of sovereign debts could affect monetary and financial stability.
 They could also undermine a central bank’s credibility as large-scale buying
activities of government bonds could be perceived as providing support for the
government’s financing needs, which could give rise to the risk of perceived
threat to its independence.

37. CURRENT
ISSUES AND
CONCERN

38. Consequences of
a Growing
National debt

39.  Lower National Savings and Income
Large sustained national deficits cause decreased investment and higher
interest rates. With the government borrowing more, a higher percentage of
the savings available for investment would go towards government securities.
This, in turn, would decrease the amount invested in private ventures such as
factories and computers, making the workforce less productive. This would
have a negative effect on wages.Because wages are determined mainly by
workers' productivity, the reduction in investment would reduce wages as well,
lessening people's incentive to work.
 Interest Payments Creating Pressure on Other Spending
As interest rates return to more typical levels from historically low levels and
the debt grows, interest payments will increase rapidly. As interest takes up
more of the budget, we will have less available to spend on programs. If the
government wants to maintain the same level of benefits and services without
running large deficits, more revenue will be required.

40.  Decreased Ability to Respond to Problems
Governments often borrow to address unexpected events, like wars, financial crises,
and natural disasters. This is relatively easy to do when the public debt is small.
However, with a large and growing public debt, government has fewer options
available. For example, during the financial crisis several years ago, when the debt
was just 40 percent of GDP, the government was able to respond by increasing
spending and cutting taxes in order to stimulate the economy. However, as a result,
the national debt increased to almost double its share of GDP.If the national debt
stayed at its current percentage of GDP or increased further, the government would
find it more difficult to undertake similar policies [another stimulus] under similar
conditions in the future. As a result, future recessions and financial crises could have
larger negative effects on the economy and on people’s well being.
 Greater Risk of a Fiscal Crisis
If the debt continues to climb, at some point investors will lose confidence in the
government's ability to pay back borrowed funds. Investors would demand higher
interest rates on the debt, and at some point rates could rise sharply and suddenly,
creating broader economic consequences.That increase in interest rates would reduce
the market value of outstanding government bonds, causing losses for investors and
perhaps precipitating a broader financial crisis by creating losses for mutual funds,
pension funds, insurance companies, banks, and other holders of government debt -
losses that might be large enough to cause some financial institutions to fail.

41.  The recent rise of public debt on 2021 is driven not so much by external or foreign loans (on
which media unfortunately tends to fixate) but by domestic loans. This chiefly consists of the
government’s issuance of debt securities (think Treasury bonds and bills) in the domestic credit
markets.
 A vast majority or 93% of domestic debt consists of debt securities, and the remaining 7%
mainly consists of loans extended by the Bangko Sentral ng Pilipinas (BSP) to the Treasury. It
may not seem obvious, but many Filipinos nowadays have excess funds they’re willing to lend
to government. And the BSP can, with a few keyboard strokes, draw up hundreds of billions of
pesos to support the Treasury.
 Meanwhile, external debt only constitutes 29% of the total debt. Nearly half of it (44%) consists
of foreign loans, including those from multilateral agencies like the World Bank or the Asian
Development Bank. The majority (56%) consists of securities issued abroad.

42. Where is the money going?
 the Duterte government allocated too much money on infrastructure projects under Build, Build,
Build, and not nearly enough on the pandemic response.
 The vaccines, too, received too little allocations. They were only given assured funding of P2.5
billion, and the rest of the vaccine budget was placed under the Unprogrammed Fund, and will
consequently be financed by loans.
 Reportedly, Duterte’s men have already signed a $500-million vaccine loan from the World
Bank and a $400-million loan from the Asian Development Bank; $300 million more will come
from the Asian Infrastructure Investment Bank.
 The vaccine loans so far, totaling P58.5 billion, will be paid directly to the vaccine
manufacturers. But the biggest constraint now is the tight supply of vaccines worldwide and the
Duterte government’s late action in securing supplies last year.
 the Duterte government is pouring money into things that aren’t remotely related to the
pandemic.The 2021 budget poured P19.5 billion into the anti-insurgency fund under the NTF-
ELCAC, which has been recently linked to red-tagging. That’s nearly twice the amount they
want to spend on economic relief for businesses under the Guide bill.
 At the same time, House Speaker Lord Allan Velasco is also pushing to add 54.6 billion to the
pension fund of military and uniformed personnel.

43.  the government will open the year borrowing P200 billion from domestic investors.
 In a memorandum, the Bureau of the Treasury announced it would auction P60
billion in Treasury bills (T-bills) in January in 91-day, 182-day and 364-day tenors.
 The Treasury will issue P140 billion worth of Treasury bonds (T-bonds) during the
month with maturities of seven years, four years, 10 years and seven years, in that
order.
 In 2005, the Arroyo administration posted a debt-to-GDP ratio of 65.7 percent after
hitting an all-time high of 71.6 percent in the prior year.
 The government’s financing for 2020 comprised 81 percent in local borrowings and
19 percent in external deals.
 For 2022, the economic team wants to reduce the mix to 77:23 in favor of domestic
investors, with the program leveling to 75:25 by 2023 and 2024.
 The Philippines has amassed an outstanding debt of P11.73 trillion on 2021, the
highest in history. Worse, the country’s debt pile, when measured against the gross
domestic product (GDP), has spiraled to a 16-year high of 63.1 percent, surpassing
the international threshold of 60 percent and even the 2021 projection of 59.1
percent

44.  By the end of 2022, the government debt, which was mostly created to pay off
COVID expenses, was estimated to reach P13.42 trillion, up from P11.73 trillion of
2021.
 The Philippine debt picture changed drastically through the years. It took 118
years for the country to raise its debt from P20 million in 1898 to P6.1 trillion in
2016, the year Duterte was elected as president. It will take just six years to
escalate the debt burden from P6.1 trillion in 2016 to P13.42 trillion in 2022.
 Finance officials continued to express confidence that the
country would be able to weather the debt challenge
because debt-to-GDP ratio would remain in the 60
percent range, which meant debt won’t be out of control.
 Sonny Africa “country faces the gargantuan task of
paying off trillions of pesos in debt, the next
administration should consider “taxing the rich.”
“Since governments inherited debt from previous
administrations, they had to generate revenues. The
bad policy choice, however, was they were
generating revenues by taxing the poor,”

45.  Tax Reform for Acceleration and Inclusion (Train) Act and Corporate Recovery
and Tax Incentives for Enterprises (Create) Act. The tax policy mirrors reliance
on indirect consumption taxes which burden the poor while reducing taxes for rich
and big corporations. The Train law reduced personal income and estate taxes but
experts said it led to increase in the costs of oil, electricity and beverages which has
a deleterious impact on the poor.The Create law reformed corporate income tax and
incentives and reduced corporate tax rate from 30 to 25 percent. But Ibon
Foundation said its studies showed that the Create law would lead to P251 billion in
foregone revenue—P133.2 billion in 2020 and P117.6 billion in 2021—which could
have been spent on a stronger COVID response.
According to data from the Bureau of Internal
Revenue (BIR), corporate taxes had a 3.5
percent Gross Domestic Product (GDP) share in
2008. It declined to 3 percent in 2019 and 2.8
percent in 2020.
Consumption taxes, including Value Added Tax
(VAT) and excise, increased to 3.7 percent in
2019 and 3.6 percent in 2020—higher than the
2.5 percent in 2008.

46.  the 2017 Train law collected P197.3 billion from oil excise from 2019 to 2020.
However, the government lost P14.5 billion as the law lessened estate and donor
taxes.
 According to Ibon Foundation’s computations, the government, from 2021 to 2023,
was expected to lose P372 billion in revenues as the Create law reduces corporate
income taxes.
 The government will also lose P5.85 billion because of exemptions from VAT,
Documentary Stamp Tax and Creditable Withholding Tax through the Financial
Institutions and Strategic Transfer (Fist) Act.
 Africa said that the next president should implement a “progressive tax system” as it
would be beneficial since it could be used to pay debt while easing the hardship of
poor and low-income Filipinos. The government should not burden the poor,
especially in the midst of the COVID-19 crisis and the reality that there are “extreme
income inequalities” and most Filipinos are without savings.

47.  Data from the Bangko Sentral ng Pilipinas showed that in the third quarter of 2021,
74.8 percent of Filipino households have no savings while only 9.7 percent have
deposit accounts.
 out of 25 million Filipino families, only 0.6 percent had a monthly income of
P219,000 to P10 million.
0.6 percent (143,000 families): P219,000 to P10 million
1.5 percent (358,000 families): P131,000 to P219,000
18.2 percent (4.3 million families): P44,000 to P131,000
32.1 percent (7.6 million families): P22,000 to P44,000
35.4 percent (8.4 million families): P11,000 to P22,000
12.2 percent (2.9 million families): P11,000 and below
 It also said that from 2020 to 2021, P13,000 to P32,500 in incomes were lost by the
poor while 15.5 million families went hungry in 2020.
 Data from the Bangko Sentral ng Pilipinas showed that in the third quarter of 2021,
74.8 percent of Filipino households have no savings while only 9.7 percent have
deposit accounts.