Mandanas ruling to ease government fiscal burden

MANILA, Philippines — The government plans to bring down the country’s outstanding debt by taking advantage of a Supreme Court ruling transferring the management of social services to local government units (LGUs).

In an economic bulletin, Gil Beltran, chief economist at the Department of Finance, noted that the country’s debt pile has exceeded the international standard of 60 percent of gross domestic product (GDP) due to pandemic expenses.

Based on data, the debt stock jumped by roughly 20 percent to P11.73 trillion in 2021 from P9.8 trillion in 2020, pushing the debt-to-GDP ratio to 60.5 percent against a year ago’s 54.6 percent.

However, Beltran said the government would try to consolidate its fiscal position, making sure revenues recover in the medium term to reduce borrowings. He said the enforcement of the Mandanas ruling this year would lighten the spending load on the national leadership.

Under the Mandanas ruling, the government is mandated to expand the share of LGUs in tax collections. On the other hand, LGUs are required to handle the responsibility of operating social services like agriculture, connectivity and health within their jurisdictions.

“Also, in the light of the Supreme Court ruling on the Mandanas-Garcia case, the devolution of pertinent functions to LGUs will help ease the fiscal burden of the national government,” Beltran said.

Moving forward, Beltran said the government would trim its fiscal deficit without compromising the steady allocation for public infrastructure under the Build Build Build program.

“Note that the medium-term fiscal program shows a declining trend in deficit largely on account of expenditures rising more slowly than GDP, but that infrastructure spending is not sacrificed,” he said.

The Cabinet-level Development Budget Coordination Committee (DBCC) aims to grow revenue collection as a share to national output to 15.3 percent this year, 15.5 percent in 2023 and 15.9 percent in 2024.

Meanwhile, disbursements are projected to decrease to 23 percent in 2022, 21.6 percent in 2023 and 21 percent in 2024 when measured against the GDP.

As such, the DBCC hopes that it can cut the deficit to 7.7 percent of the economy this year, from an outlook of 8.2 percent in 2021. Likewise, the deficit should return to its pre-pandemic level in the following years, to 6.1 percent in 2023 and 5.1 percent in 2024.

“The government continues to judiciously manage debt, maintaining a prudent balance between the domestic and external sources of financing, with more emphasis on the former to minimize effects of external risks,” Beltran said.

The government needs to work on slashing the debt-to-GDP ratio, as lingering in the 60 percent level may alarm credit monitors and multilateral lenders on the country’s capacity to pay debts.