The economic managers on Wednesday indicated a willingness to widen the country’s debt as percent of local output, or the gross domestic product (GDP), to finance whatever is required to meet rapidly changing conditions wrought by the COVID-19 pandemic.
This was learned from Finance Secretary Carlos Dominguez III who said the existing debt burden remains prudent.
“We are prepared to increase our debt levels. We are in a very good position to combat COVID-19. We have the capacity to do that. Our economic fundamentals are very strong,” Dominguez told reporters.
He said the plan is to tap all markets, depending on how long the pandemic lasts as the Philippines is “very well prepared” to increase its debt.
“As you know, we have reduced our debt from over 70 percent of gross domestic product to only 41 percent of GDP,” Dominguez said.
But according to him, the financing requirement has not yet been determined at this point as further assessment is needed to determine the pandemic’s total economic impact.
“I tell you, we are willing to do as much as it takes but at this point I don’t have the exact number,” he said.
He ruled out shutting down the financial markets as initial reaction to provide markets time to absorb and consider the developments.
But he acknowledged low revenue collection by the main collection agencies in the months ahead and thus the need to borrow, whether from domestic or international sources, to make up for the slack.
The interagency Development and Budget Coordination Committee has estimated that at zero-growth, the drop in revenue collection will total P286.4 billion. Should the economy contract at minus one percent in terms of GDP, the drop in revenue will be P318.9 billion, Dominguez said.
“These are rough numbers but at this point, we don’t even have a very good estimate of what the GDP is going to look like,” he acknowledged.
Still, he said revenues from fuel will be down by about P14 billion given the drop in both demand and oil prices.
Also, the target budgetary shortfall of 3.2 percent of GDP this year could prove small eventually given current economic conditions.
The main economic planning agency the National Economic and Development Authority (NEDA) targets a budget deficit as wide as 4.4 percent up to 5.4 percent of GDP this year.
“Aggressive efforts to contain COVID-19, including the Luzon-wide quarantine, could by itself add pressure on the country’s fiscal position. Even without additional spending, the estimated decline in GDP (2.1 percent to 6.6 percent) can increase the national government budget deficit to 4.4 to 5.4 percent of GDP in 2020, assuming the same revenue effort,” NEDA said.