Indebted

The Marcos administration is just about ready to submit to Congress its proposed national budget for 2025. The proposed budget runs to a little over P6 trillion. About a third of that amount will be financed through additional borrowing.

As usual, we expect the legislators to pore over the proposed budget line by line. They will summon heads of agencies to explain their spending plans. Some money will be moved from one item to another.

Some legislators will take the opportunity to grandstand. They will take some hapless agency to task for its failures. Sometimes, legislators will threaten to cut off agency allocations completely – although cooler heads will likely restore those cuts in the bicameral conference committee.

Few legislators will discuss the sustainability of our propensity to borrow. It is always more politically profitable to approve expensive subsidy programs. Advocates of fiscal discipline  always lose elections.

No ambitious legislator will build a career by arguing for more taxation. Voters do not want that.

Finance Secretary Ralph Recto knows this more than any one else. As a congressman two decades ago, he bravely advocated value-added taxation (VAT). The VAT was very helpful in stabilizing the nation’s finances and improving our credit ratings – reflecting in reduced interest charges for our debt. But voters punished Recto in the next elections.

The attitude of our voters is not unique to us. In nearly every country, voters rally behind politicians who promise more subsidies and regularly throw out of office those who dared raise taxes.

A recent CNN report tells us that the world’s governments have accumulated a combined debt of $91 trillion. That indebtedness is about equal to the size of the world’s total GDP. Into the foreseeable future, the indebtedness is going to grow. There is simply no political will to enforce fiscal discipline on a global scale. We will just wait for the global debt bomb to explode – something that could happen sooner than ice melt that will raise sea levels.

The most serious offender in this regard is the US.

US national debt now runs at about $30 trillion – nearly the size of US GDP. In the current fiscal year, the federal government will spend $892 billion in interest payments. Next year, payments will rise to over a trillion dollars.

The Philippines, by comparison, has public debt climbing to about P15 trillion. That is about two-and-a-half times next year’s proposed budget. Our debt servicing runs just over 60 percent of GDP, crossing the threshold of prudence.

Public debt could rise more quickly, considering the world now operates in an elevated interest rate environment. In this environment, governments will be forced to borrow more.

We will just keep doing this until the debt bomb explodes.

Gas

Malaysia, Indonesia and Thailand lead Southeast Asia in natural gas production. The Philippines lags because we have not evolved the policy framework to encourage exploitation of this resource.

Gas extraction in the region now amounts to about 210 billion cubic meters a year. The International Energy Agency estimates the region’s gas production could grow by another 50 billion cubic meters between 2030 and 2050. The Philippines must prepare to join this caravan.

The new chair of the Senate energy committee, Sen. Pia Cayetano, had the opportunity to visit the Malampaya offshore gas platform. This platform, supplying a huge chunk of Luzon’s energy production, is operated by the SC 38 Consortium led by Enrique Razon’s Prime Infrastructure Capital.

The visit impressed Sen. Cayetano and she is now convinced indigenous gas production could become the country’s main energy source. This will lessen our dependence on imported coal and oil, thereby improving our energy security in the face of all the geopolitical uncertainties hogging the world stage.

The fate of Senate Bill 2247, the proposed Philippine Downstream Gas Industry Development Act, is now in Sen. Pia Cayetano’s hands. The Department of Energy has endorsed this bill which seeks to prioritize locally produced natural gas for use in our power generation. One might call it a Filipino Gas First policy. This will guarantee a domestic market that will in turn encourage investments in exploration and extraction of natural gas.

Like oil, exploration and extraction of natural gas resources is a capital-intensive enterprise. The costs become even more prohibitive since most of our known gas deposits are offshore. This will require constructing drilling platforms in the open sea.

Under Filipino ownership, the Malampaya gas wells have been expertly operated by highly skilled engineers. When our power reserves became desperately thin last April 16, supplies from Malampaya proved to be the key to ensuring full operation of the gas powered plants supplying 20 percent of Luzon’s electricity. Malampaya’s operators proved nimble in shifting excess electricity from adequate grids to those in peril of shortages. This is a foretaste of things to come.

Our neighbors Indonesia and Malaysia appreciated early on the need to develop domestic natural gas production. This is the reason why together they account for over half of the region’s natural gas production. With adequate gas production, they enjoy immensely better energy security – not mentioning comparatively better energy pricing.

It is not too late to catch up with our neighbors. Senate Bill 2247 promises to deliver a more reliable energy sector for the country even if we still have to deal with geopolitical vagaries in areas identified as having viable gas deposits.

Our legislators must move a little more quickly.