EXCLUSIVE: Focus on fiscal consolidation, next administrator urged

LESS than two months before a new coterie of elected officials seizes the reins of the bureaucracy, the Office of the Treasury announced last week that the government had taken on a new record level of debt.

The latest data showed that the national government has so far incurred an outstanding debt of 12.68 trillion pesos at the end of March, higher by 586.29 billion pesos or 4.8% compared to 12.09 trillion pesos at the end of February this year.

To solve this problem, economists said it was crucial that the next administration ensure that the economy grows faster than its rate of debt accumulation.

ING Bank’s chief economist, Nicholas Antonio T. Mapa, told BusinessMirror that the next administration should be discerning when it comes to choosing projects and programs.

“As such, it is imperative that the new administration focus on projects that would generate revenue streams and refrain from populist agendas that may be popular but will ultimately lead to increased debt,” the message read. text from Mapa to BusinessMirror.

Additionally, Mapa said the next president should prioritize fiscal consolidation, as he warned that the current debt-to-gross domestic product ratio – at 60.5% in 2021 – “leaves the Philippines vulnerable to credit rating downgrade.

Policymakers also need to watch out for several headwinds for this year and next, including accelerating inflation and soaring borrowing costs, he added.

Mapa explained that both “can dampen growth and revenue collection while increasing the need for fiscal support, which in turn could lead to higher debt accumulation.”

Focus on chips

Maria Ella C. Oplas, professor of economics at DE La Salle University, said the next administration could spur robust economic growth by focusing on three industries: semiconductors, tourism and services.

According to Oplas, the move will help the economy grow “slowly but hopefully surely.”

“[Focus on] semicon to capture some of the releases in China and hopefully help address the chip shortage we are experiencing,” Oplas said.

She also recommended the full opening of the economy to the tourism and service sector.

“To leave [the] private sector leader. We already have it Create [Corporate Recovery and Tax Incentives for Enterprises] and ‘Build, Build, Build’, so we should capitalize on that and encourage more investors into the country,” Oplas said.

Oplas also cautions the new administration against imposing new taxes, adding that this would further fuel the pace of inflation amid soaring food and fuel prices. Last week, the Philippine Statistics Authority reported that April inflation at 4.9% was the highest since the 5.2% recorded in December 2018.

“In response, the government will borrow again. It’s an endless cycle,” she said.

Instead of new taxes, Oplas said a better option for the government is to improve its efficiency in tax collection and attract new investments that will lead to increased revenue.

Wealth tax

The executive director of BUT IBON Foundation Inc., Jose Enrique A. Africa, doubts the ability of the new administration to cope with the debt.

Africa said it would be “highly unlikely” that the government would reduce its stock of debt for any length of time, as it needs resources for its upkeep and for social and economic development.

Still, he said there are steps the next administration can take to make its growing debt stock more manageable. These include rolling out a major fiscal stimulus package to revive economic activity and help boost incomes.

“Revenue generation is effectively suppressed, people’s suffering prolonged and small businesses hampered by the current administration’s fiscal conservatism. Fiscal tightening to please credit rating agencies is counterproductive,” he said.

“This stimulus can also be facilitated if the next administration negotiates a halt to debt repayment, both principal and interest, at least with development agencies and creditor governments,” Africa added.

He also reiterated the need for the government to craft a well-designed wealth tax to raise 470 billion pesos in annual revenue that could help reduce a budget deficit, reduce borrowing and ease debt servicing.

In addition, Africa also cautioned against imposing consumption taxes.

“It should also avoid the temptation to resort to consumption taxes which are unduly burdensome for ordinary Filipinos,” he said.

Africa added that the government should also take steps to reverse regressive trends in the tax system as part of the Tax Reform for Acceleration and Inclusion, or Train, Act (Republic Act 10963) and Create law ( Republic Act 11534).

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