Senate Minority Leader Franklin Drilon expressed confidence in the capability of Finance Secretary Carlos Dominguez III and the rest of the economic team to ensure the sound and efficient management of the debt incurred to fund the government’s “Build, Build, Build” infrastructure program, the Department of Finance said in a statement on Friday.
Drilon, who heads the minority bloc in the Senate, said he wanted it to be put on legislative record “the fact that we have limited our total debt within manageable levels.”
“I have complete confidence in Secretary Sonny Dominguez that he will not mismanage our debt structure,” Drilon said during the plenary debates on the proposed 2019 General Appropriations Bill.
House Bill 8169 proposed a PHP3.7-trillion national budget for fiscal year 2019. It was approved by the House in November and is now pending consideration by the Senate.
Drilon noted that for 2015, the Philippines’ total debt was 44.7 percent of Gross Domestic Product. This fell to 42.1 percent in 2016 and 2017 and maintained this level at 42.3 percent as of September 2018, “which is well within the acceptable standards of 60 percent of GDP as a limit of our foreign borrowings.”
Sen. Loren Legarda, who defended the proposed 2019 national budget as chairperson of the Senate finance committee, echoed Drilon’s assessment, saying that the Duterte administration’s economic team has crafted a “medium-term debt management strategy … that is fiscally sound, necessary and sustainable.”
“Let me just put into the record that debt-to-GDP ratio is the right metric rather than the absolute level of public debt. (At the) end of 2017, it was at a low of 42.1 percent (in relation to GDP) and the projection by 2022 is that it will decline by 38.6 percent. I believe the rule of thumb of a country is to have a debt-to-GDP ratio below 60 percent, and that is covered by the present state of our debt-to-GDP ratio,” Legarda said.
As for the concerns raised by Drilon over the possibility of a “Chinese debt trap” owing to the financing support secured by the economic team from China, Legarda assured him that several safeguards were put in place to ensure that Beijing-funded projects are economically sound and the debts attached to them would not be mismanaged.
Drilon had raised his concerns over the practice of the past administration of entering into financial contracts with China without undergoing any public bidding, as well as the alarm raised by the World Bank over other states such as Sierra Leone and Sri Lanka falling into a “Chinese debt trap.”
Legarda, however, made it clear that the projects under the “Build, Build, Build” program and other development projects of the Duterte administration to be funded by China entail a rigorous vetting process by Beijing, which recommends three Chinese contractors of good standing per project to bid among themselves for the projects.
Moreover, Legarda agreed with Drilon that because the Chinese loans are dollar-denominated, the interest rate of about 2 percent for them are reasonable and offers the Philippines a stable currency rate as compared to the yen-denominated loans from Japan, which is also helping fund the “Build, Build, Build” program.