Prudence

The most important legacy of the Duterte administration may also be the least understood.

Having gone through the challenges posed by a pandemic, the Duterte presidency leaves office with a relatively strong fiscal position. All nations incurred unplanned borrowing over the past two years. Our unplanned borrowing was sufficient to turn back the health crisis while remaining within prudential limits. This is the reason we retain our impressive credit risk ratings.

It is fashionable to raise alarm over the fact that our debt pile now nears P13 trillion, depending on the movement of currency exchange rates. It is expected to grow to P13.2 trillion by the end of this year. That number is often quoted without the necessary context.

The theme being peddled by anti-Duterte commentators is that the next administration will be nearly bankrupt. That is a piece of disinformation. Our gross international reserve is at its most robust level, only slightly diminished by our higher oil import bill. Our debt-to-GDP ratio is expected to be about 60.9 percent – only a shade above the 60 percent considered prudential.

Remittance inflows from our large overseas army of workers continue growing. Investment flows are continuously improving.

Department of Finance (DOF) chief economist Gil Beltran released a statement the other day that deserves our attention.

According to Beltran, our debt load could have spike to P15.4 trillion this year had the Duterte administration failed to hold the line on fiscal prudence. National government could have borrowed an additional P2.2 trillion had it yielded to populist proposals by our politicians entailing additional spending or revenue losses. Either way, we would have needed to borrow more. This would have pushed up our debt load way beyond that is prudential.

The DOF intervened proactively when some of our legislators went overboard, proposing large and unsustainable spending programs. They did this primarily to earn brownie points with voters.

The DOF, for instance, struggled to keep the Bayanihan 2 stimulus program to within P140 billion. Instead, the agency pushed for what Beltran described as “fiscally sustainable economic recovery programs” such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and the Financial Institution Strategic Transfer (FIST) laws.

The DOF resisted revenue-losing proposals such as providing VAT exemptions for electricity, fuel and LPG. The populist “Makabayan” bloc at the Lower House advanced this proposal mainly to score brownie points with voters and undermine support for the administration.

The DOF likewise opposed proposals to provide additional cash subsidies to the poor through costly programs outlined in the rejected Bayanihan 3 bill. Rep. Joey Salceda, Rep. Stella Luz Quimbo and Rep. Sharon Garin supported that ill-fated bill.

The Finance Department likewise objected to the proposal to exclude the 13th month pay and performance-based bonuses from taxable income. Rep. Vilma Santos Recto and Rep. Victor Yap were sponsors of this bill.

Bayanihan 3 alone would have required a total of P401 billion in financing, the bulk going to cash subsidies. Since that amount is beyond our budget resources, it would have had to be sourced through borrowing. That consideration, it seems, never crossed the minds of the politicians agitating for more state spending, as if this was what would roll back the pandemic.

In the end, we did roll back the pandemic quite successfully. This was done not through direct cash injections but through an efficient rollout of the vaccination program.

A successful vaccination program that has now brought us to the conventionally accepted level of herd immunity in turn enabled us to open up the economy quickly and reduce unemployment. The direct cash subsidies would have only stoked inflation.

The reason the Philippines rose impressively in the Nikkei pandemic response index is an efficient vaccination program, not throwing cash at people in a fiscally unsustainable way.

Giving out cash like it was going out of style might have also won popularity points for the Duterte presidency. But the President opted for long-term fiscal sustainability rather than short-term popularity points. He was ready to expend his immense political capital to achieve a sustainable recovery.

We all know that a major reason for Bongbong Marcos’ astounding victory in the last election is that his campaign rode the current of President Duterte’s high trust and approval ratings. Had the President yielded to the politicians, Bongbong might have garnered 70 percent of the vote. But he did not need to have that margin, especially if it rode the crest of bad fiscal policy.

The populists will continue pushing us deeper into debt if they could have their way.

In the face of sharply rising fuel prices globally, populist groups have been pushing for the suspension of excise taxes on oil. These have been the same groups demanding a hefty increase in cash subsidies. They do not seem to understand that any revenue loss at this time, when we are operating with substantial budgetary deficits, will immediately convert into additional debt.

The cost of money is rising across the board. Any additional borrowing will be costlier than before, even if we insist on borrowing from the highly liquid domestic market. Should we push our indebtedness beyond the bounds of what is considered prudential, we will lose the credit ratings we now have. These ratings have allowed us to borrow at lower rates.

Fortunately, President Duterte is now beyond hankering for more popularity points. The excise taxes will stay. High as fuel prices may go, the pain will have to be distributed fairly to those who consume the commodity directly.