Finance Secretary Carlos Dominguez III has reassured the public that the Philippines will not fall into a “debt trap” to any other country as the government expands its infrastructure investments through concessional loan financing from its development partners.
Dominguez, at the same time, reiterated that in conformity with the Constitution and our laws, none of the pipeline projects funded with official development assistance (ODA) from countries like Japan and China allow for the appropriation or takeover of domestic assets in the event of a failure to pay, which will never happen.
The government’s borrowing program, Dominguez noted, remains “very conservative in the sense that we only borrow to invest in projects that will generate economic gains which are greater than the borrowing cost.”
According to Dominguez, no infrastructure project is funded through ODA without first going through a rigorous system of reviews and approvals by the Cabinet and the President, and unless it is certain that the project is economically viable and highly beneficial to the Filipino people.
“We have been warned about the so-called debt trap owing to the massive infrastructure spending and loans from China under this administration. Let me assure you that the Philippines will not fall into a debt trap to any country as we expand our infrastructure spending with ODAs,” Dominguez said before members of the Rotary International District 3800 during their district conference held last week at the Edsa Shangri-la Hotel in Mandaluyong City.
“We draw lessons from our own history as well as that of other countries and are ensuring that we manage our debts prudently,” he added.
Dominguez said the highly concessional loans and grants received by the government to help fund the Duterte administration’s “Build, Build, Build” program will help make the economy fully competitive, create jobs, open more business opportunities, bring down logistics costs and realize better-distributed growth.
“We ask the few who understand complex ODA terms to help us battle malicious efforts to confuse and misinform the public,” he said.
Dominguez said the government’s debt is carefully structured to ensure that it does not borrow without raising its own capital for infrastructure projects, while at the same time sourcing a significant portion of financing from the local debt market to minimize exposure to adverse external factors.
He said that as of 2018, the government’s project debt exposure was only 0.66 percent to China and 9 percent to Japan in relation to the total debt.
By 2022, when most of the financing for the “Build, Build, Build” program will have been accessed, the country’s project debt to China will account for 4.5 percent, while that of Japan’s will be twice as large at 9.5 percent of the total debt.
Dominguez pointed out that the Philippines was the first country in the region to embark first on tax reform before moving at an aggressive pace in its infrastructure modernization program.
The tax reform program, particularly its first package–the Tax Reform for Acceleration and Inclusion (TRAIN) Law–that reduced personal income tax (PIT) rates while raising additional revenues to broaden the revenue base, enabled the government to invest in public goods and develop a credible fiscal position, which have attracted strong support from the Philippines’ development partners and foreign governments, Dominguez said.
Aside from putting in place a steady revenue stream to support the cash-intensive “Build, Build, Build” program, Dominguez said the government also worked down its debt and shored up its international reserves to achieve a stronger financial sector.
“There is no secret about the high growth strategy we are pursuing. At the core of this strategy are: the sustained fiscal discipline that ensures financial strength for our economy and a massive infrastructure program that will provide a strong stimulus for domestic economic activity,” Dominguez said.
But the key to the success of this growth strategy is rapid execution, with better infrastructure translating into “improved economic dynamism in time for our demographic sweet spot: that surge in the number of young, better-trained Filipinos entering the workforce,” he said.
As a result of the massive infrastructure buildup, Dominguez said the government anticipates a high growth rate ahead for the economy despite forecasts of slower global expansion over the next few years.
He said that along with an ambitious infrastructure program, the government is also implementing or will soon implement measures to make doing business in the country easier, eliminate red tape, enable freer trade and raise efficiencies in all sections of the economy.
These business-friendly initiatives include the Ease of Doing Business (EODB) Act of 2018, the creation of the National ID System, the law upgrading the Corporation Code, an act strengthening the Central Bank of the Philippines, a universal health care (UHC) program, and the shift to a tariffied regime for rice imports.
“We, who are in government today, cannot afford to betray the best hopes of our people. This is why we are trying our best to work as hard as possible, to push forward the necessary policy reforms and build an environment that will produce inclusive growth,” Dominguez said.
He said the Duterte administration’s goals are to put in place an “inclusive financial system, a broader tax system, an economy driven by investments to provide quality jobs, and high quality infrastructure that will both improve the quality of life for the Filipinos and make our economy competitive with those of our neighbors.”