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Diokno: Phl has strong economy

The country’s debt reached P12.68 trillion in March, out of which a total of P3.2 trillion were from recent as well as Covid-19 borrowings.

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Tribune Photo by Joey Sanchez Mendoza

The incoming finance secretary is not worried about the ballooning national debt because of the country’s stronger economy, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said on Friday.

The country’s debt reached P12.68 trillion in March, out of which a total of P3.2 trillion were from recent as well as Covid-19 borrowings. This brought the country’s debt-to-GDP (gross domestic product) ratio to 63.5 percent or above the international standard of 60 percent.

“I think I have the benefit of having served the government around more than 30 years and I’ve seen all the crises. I’ve seen debt-to-GDP ratio close to 100 (percent). I’ve seen the worst of the Philippines… We are in a better place right now,” Diokno said in a television interview.

“I’m not worried about the level of the debt that’s 63 percent. That’s easily manageable as long as the economy can grow by 6 (percent) to 7 percent which is our recommendation. Before the crisis we can easily outgrow our debt,” Diokno said.

Diokno said the country also has a sound tax structure and that the focus should be on sustaining the growth trajectory of the economy to solve problems.

Keeping an accelerated growth pace “could solve many problems,” Diokno said when he was asked about the Department of Finance’s (DoF) proposed fiscal consolidation plan to pay the debt.
“The focus should be higher growth economy. Grow the economy and everything will follow,” he added.

Moreover, the incoming finance secretary’s advocacy is to prioritize the digitalization of all the government transactions.

“I want at least half of all transactions to be in digital form, and we’re fairly close to it, and thanks to the pandemic,” Diokno said.

He also said that he wants at least 70 percent of all Filipinos to have financial accounts, so the public should participate in the financial system.

EGov Pay

Moreover, the use of EGov Pay, a system that enables digital payment for government services, jumped by 467 percent to over 91,000 transactions at end-2021 from around 16,000 transactions a year earlier, Diokno said.

The BSP also reported that the value of EGov Pay transactions increased by 300 percent, from around P61 million in 2020 to nearly P246 million in 2021.

“The sustained increase in the use of EGov Pay, even after mobility restrictions were lifted, proves the shifting preference of consumers towards greater adoption of digital payments,” Diokno said.

The most common payments processed through EGov Pay are fees for government clearances as well as taxes. From only two government billers when the facility was launched in 2019, 484 billers have been onboarded to EGov Pay at end-April this year.

The billers include provincial and local government units, state colleges and universities, water districts and other government agencies and offices.

By participating in EGov Pay, government institutions can efficiently collect revenues, which are crucial to their delivery of public and social services. Moreover, the government may curb revenue leaks through efficient collection means, a better audit trail and enhanced transparency.

Recently, President Rodrigo Duterte signed Executive Order (EO) 170 mandating the adoption of digital payments for government disbursements and collections by all departments, bureaus, offices and agencies, including government-owned and-controlled corporations (GOCC).

The EO is in line with government’s thrust to develop an inclusive digital finance ecosystem consistent with the BSP’s Digital Payments Transformation Roadmap 2020-2023 and the National Strategy for Financial Inclusion 2022-2028.

Investment frameworks

In a related development, Duterte has directed all non-bank government entities to formulate investment governance frameworks for foreign exchange (FX) derivatives transactions.

The President approved on Tuesday Administrative Order (AO) 48 to regulate FX derivatives transactions of non-bank entities to “configure the country’s public sector debt profile.”

Copies of the measure were released to the public on Thursday.

“There is a need to institute sufficient monitoring safeguards and risk management mechanisms in FX derivatives transactions to protect the National Government’s fiscal and economic interests in non-bank government entities,” Duterte wrote in the AO.

He also said the order aims to ensure that the government debt “involves extended maturities” and an “optimum mix of currencies” to minimize the impacts of drastic currency movements.

Duterte said the order would take effect immediately after its publication in the Official Gazette or a newspaper of general circulation.

Under the AO, the President directed the DoF to oversee all FX derivatives activities of all non-bank government entities like GOCC.

These include Government Service Insurance System, Social Security System, Home Development Mutual Fund and Philippine Health Insurance Corporation, as well as other government entities not regulated by the BSP.

The finance department, as well as the Board of Directors or Trustees or the Heads of all covered entities, should approve investment governance frameworks.

The Secretary of Finance may disapprove or defer approval of investment governance frameworks on the ground of non-compliance with the requirements under the implementing guidelines to be issued under the order, provided that the covered entity concerned will be given an adequate opportunity to comply and address the concerns relative to its submission.

Covered entities should submit to the DoF at the end of every quarter a report on FX derivatives outstanding, a mark-to-market valuation report, if applicable, and such other reports as may be required under the AO’s implementing guidelines.

Such reports should be included in the GOCC’s liabilities and processing tool of the DoF, as may be appropriate, to allow the government to evaluate and analyze the impacts of such FX derivatives transactions.

Golden age of Infrastructure

The Secretary of Finance should promulgate implementing guidelines, which must include, among others, the content of the investment governance frameworks of covered entities within 60 days from the effectivity of the order.

Covered entities that have executed FX derivatives transactions before the issuance of this order are given 45 days from the issuance of the implementing guidelines to submit to the DoF their respective investment governance frameworks, as well as the required reports on FX derivatives outstanding.

Derivatives are contracts between two or more parties, which derive their value on an agreed-upon underlying financial asset, index, or security, such as bonds, commodities, currencies, or stocks.

Meanwhile, Diokno said the new government should continue the “golden age of infrastructure” because it creates high quality jobs.

“The ‘golden age of infrastructure’ or the build, build, build, it should be continued because it creates jobs, high quality jobs and expands the capacity of the economy,” Diokno said in a television interview.

“Right now we have better airports, better seaports, we need the shipping to be super efficient. So that should be continue,” the outgoing BSP governor added.

In 2016, Diokno remarked the Philippines will see this golden age of construction because of government ramp-ups of infrastructure projects.

The projects will be rolled out “simultaneously and not sequentially” in all regions, adding that major government construction projects will be done full-time, 24/7.

Moreover, Diokno said in an interview that “we should link the lagging regions to the leading regions so that it creates a lot of opportunities along the way.”

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