The protracted pandemic has brought unprecedented economic challenges around the world. In the Philippines, the COVID-19 crisis wiped out the country’s gains in recent years as it took out a massive loan of 1.4 trillion pesos to fight the pandemic.
Two years later, the virus remains very unpredictable and the government has already suffered heavy tax losses due to this pandemic-induced economic crisis which has also resulted in increased debt.
According to the Ministry of Finance (DOF), the government suffered 785.64 billion pesos in tax revenue losses as a result of the crisis, or about 4.4% of the country’s economy, as measured by gross domestic product. (GDP) in 2020 alone.
The tax cut was a reversal from the 16.2% growth the Duterte administration predicted before COVID-19 hit early last year.
For this reason, the government debt at the end of November 2021 swelled to 11.93 trillion pesos, or 3.24 trillion pesos more than the 8.48 billion pesos outstanding at the end of March of the year. last.
Finance Secretary Carlos G. Dominguez III, the government’s chief economic director, the total financial cost of loans related to COVID-19 amounted to $ 28.91 billion or 1.47 trillion pesos.
The borrowed money was raised through concessional loans from the Asian Development Bank, the World Bank, the Asian Infrastructure Investment Bank and other Philippine development partners.
The Duterte administration also exploited the commercial debt markets by selling IOUs to foreign creditors.
Of total borrowings, its principal is $ 22.58 billion or 1.15 trillion pesos, while the projected amount of interest payments to maturity between 2024 and 2060 is $ 6.32 billion. of dollars or 320.85 billion pesos.
Of the principal amount, $ 21 billion has been allocated for general budget support to make up for the loss of government collections, while $ 2.4 billion has been allocated for COVID-19 response and recovery projects, including including the purchase of vaccines.
According to Dominguez, $ 19.8 billion of the total amount borrowed has been disbursed to fill the budget deficit since March of last year, while about $ 1.2 billion of the 2.4 billion loans have been used to purchase laboratory equipment, medical supplies and vaccines.
With less than a year to go before President Duterte’s term ends, Dominguez has admitted that the current level of debt is unsustainable, saying his successor needs to keep a close watch on how to get out of the debt of several thousand. billion pesos.
The DOF estimated that the next administration would need to grow the economy by more than six percent to bring the government’s debt-to-GDP ratio to an all-time low.
The government entered 2020 with a debt-to-GDP ratio of 39.6%. However, that figure rose to 60.4% by the end of June 2021, slightly above the internationally accepted level of 60%.
The DOF is currently examining the viability of pursuing a fiscal consolidation plan to minimize long-term economic scars that could arise as a result of the COVID 19-induced crisis.
“We are preparing a budget consolidation plan, but it is not going to come out all at once,” Dominguez said. “We will do this through periodic broadcasts, periodical editorials [opinion editorials]. “
“It is an evolving plan, which we will leave to our successors in the next administration,” he added.
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