FINANCE Secretary Carlos G. Dominguez III has thumbed down the proposed House bills seeking to put a cap on the government’s debt and create a Debt Management Board.
Dominguez said placing a debt cap would only hinder the government from acting fast, especially in times of crisis.
House Bill 4538 filed by Batangas Rep. Vilma Santos-Recto in 2019 proposed a debt cap of 50 percent of GDP. It also seeks to put a cap on the borrowings of the national government by mandating the Chief Executive to go back to Congress and seek authority to borrow more should the national government’s fiscal deficit target, as submitted by the President, be breached before the end of the fiscal year.
“As you know, Indonesia has a debt cap law and I think a deficit law, and the moment the pandemic struck, they threw it out so what’s the point of having one when you are really going to breach it you’re just going to throw away the law?,” Dominguez told a House Committee on Ways and Means hearing on Monday.
Dominguez stressed that Congress already has the power to determine the government’s debt cap when it approves the national budget proposed by the Executive branch.
“I don’t think at this point, there is a need to put a cap and make the country very inflexible,” Dominguez added.
On House Bill 819 establishing a debt management board filed by Muntinlupa Rep. Rozzano Rufino B. Biazon also in 2019, Dominguez said the government has already sufficient oversight on debt management.
Under the bill, the Cabinet-level Debt Management Board to be chaired by the President will integrate and coordinate the country’s debt management system that includes debt recording and inventory, debt monitoring, and analysis, risk management, debt planning, debt service payments, advice on debt negotiations and borrowings, and formulation of debt policies and strategies.
“Quite frankly, at present, we have all the procedures already and the different sets of institutions look at our debt, including the Monetary Board, which is independent, the DBCC [Development Budget Coordination Committee]and the ICC [Investment Coordination Committee] in Neda [National Economic and Development Authority] so I think we have sufficient oversight already, at this point in time,” Dominguez said.
In the same hearing, Dominguez said the 15-percentage-point increase in the country’s debt-to-GDP ratio from a historic low 39.6 percent in 2019 to 54.6 percent in 2020 “is still within the prescribed bounds of fiscal viability and the experience of our neighbors and rating peers globally.”
He added that the sustainability of the country’s debt depends on two factors: the cost and the ability to generate economic activity to pay it off.
“It is important to note that about 25 percent of our domestic economy consists of government spending. If we did not increase the level of public spending through borrowings, the domestic economy would have collapsed. This event would have inflicted a far more painful toll on our people,” he said.
Moving forward from the pandemic, Dominguez said the economy must grow in order to bring down its debt-to-GDP ratio.
“The best way you can get out of this debt is to grow out of it that after this pandemic, we will grow at rates that will allow us to bring down our debt. And our cooperation with Congress since 2016 has allowed our economy to grow fast and reduce our debt to the lowest it has ever been for maybe 30 years,” he said.
As of end-July this year, the national government’s outstanding debt has already piled up to a new record-high of P11.61 trillion, swelling by 26.7 percent from P9.16 trillion a year ago.
The national government’s outstanding debt this year is also expected to balloon by year-end to P11.73 trillion, up by 19.8 percent from P9.795 trillion in 2020. This is also projected to further swell in 2022 to P13.42 trillion.
As a percentage of GDP, Dominguez earlier said the debt-to-GDP ratio this year is projected to further rise to 59.1 percent and peak next year at 60.8 percent—slightly above the internationally accepted threshold—before gradually tapering off to 60.7 percent and 59.7 percent in 2023 and 2024.
As of end-June this year, the country’s debt-to-GDP ratio is already at 60.4 percent.
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