The unprecedented cost of tackling the COVID-19 pandemic has weighed heavily not only on the Duterte administration, but also on the new president who will be elected in the May 2022 election. For starters, the next administration will have the pain task to cope with a huge pile of debt. The Philippines has borrowed 1.15 trillion pesos to finance the protracted pandemic fight.
The finance ministry warned that while foreign loans linked to COVID-19 totaled $ 22.58 billion, the total financial cost of the pandemic so far – including interest payments – stands at reality at $ 28.91 billion or 1.47 trillion pesos. The national government debt stock, by contrast, will hit a new high of 13.42 trillion pesos by the end of 2022, up from 11.730 billion pesos at the end of this year.
This increase in borrowing pushed the Philippines’ debt-to-gross domestic product (GDP) ratio, which reflects an economy’s ability to repay its bonds, to 54.6% in 2020, from a record high of 39.6%. in 2019. At the end of September 2021, this figure reached a peak in 16 years of 63.1%, above the threshold of 60% considered by the rating agencies to be manageable. The debt ratio is expected to stand at 59.1% by the end of 2021 and climb to 60.8% in 2022. The share of debt to the economy is expected to decrease to 60.7% in 2023 and at 59.7% in 2024.
As with any other debt, the solution is to generate more income, either through new or higher taxes or by selling government assets. Raising tax and non-tax revenues to cope with the higher cost of financing debt repayment will be the biggest challenge for the incoming presidency, as business activity is expected to remain low and pandemic-related spending such as the financial assistance to the poor will increase over the next year. .
Debt tightening is just one major issue facing the new administration. Finance Secretary Carlos Dominguez III, head of Mr Duterte’s economic team, recently painted a grim picture of what the next president can also expect. High inflation, worsening income inequalities and climate change, he said, are three other critical issues that must be addressed by the next government so that the economy can return to a healthy state.
The incoming presidency must “deal with the problem of inflation caused by shortages in the world,” Dominguez said. Headline inflation in the Philippines has already exceeded the government’s manageable target range of 2-4 percent due to expensive food. âInflation is imported,â the finance chief said, noting that faster inflation is due to rising oil prices and transport and logistics costs due to the pandemic. The pent-up demand following the recovery of many economies around the world has also resulted in shortages of goods, from microchips to cars. “So how the next administration will deal with inflation is very crucial,” he said.
The third challenge is the need to manage the inequalities exacerbated by the pandemic. A World Bank report earlier indicated that the most vulnerable sectors – the poor, women and schoolchildren – will take even longer to recover from the economic crisis. Dominguez said that although the administration was successful in its first three years in reducing poverty, it has recovered.
The next administration must also “tackle climate change without stretching the country’s fiscal space,” according to the chief financial officer. Considered one of the countries most vulnerable to climate change, the Philippines has ambitiously pledged to reduce its greenhouse gas emissions by 75% over the next 10 years as part of the Paris Agreement. Dominguez led the Philippine delegation to the recently concluded 26th session of the United Nations Conference of the Parties on Climate Change in Glasgow, UK.
To avoid a debt-induced economic crisis, former finance secretary Roberto de Ocampo, writing in a commentary in this article last Saturday, highlighted the socio-economic planning secretary’s recently unveiled 10-point policy agenda, which is rooted in accepting COVID-19 as an endemic presence like regular flu and bats to provide the space for a wider and faster economic resurgence. Describing Chua’s recommendations as “thorough and well thought out” and capable of avoiding the terrible combination of runaway borrowing and sluggish GDP growth, De Ocampo suggested that “competing presidential tandems would be well advised to adopt this. non-partisan document across party lines, lest the winners find themselves with a Pyrrhic victory.
There will be no easy way to tackle the gigantic tasks that lie ahead. Given the deep scars caused by the pandemic and the economic slump, the next administration will have to forgo a “honeymoon” round and stick its nose in the grindstone on day one.
Subscribe to INQUIRER PLUS to access The Philippine Daily Inquirer and over 70 other titles, share up to 5 gadgets, listen to the news, download from 4 a.m. and share articles on social media. Call 896 6000.