PH borrowings to fight COVID-19 pandemic reach P1.15 trillion

Finance Secretary Carlos G. Dominguez III. (Photo from the Department of Finance)

MANILA, Philippines — The Philippines’ borrowings to finance the prolonged fight against COVID-19 have already hit P1.15 trillion, adding to the pandemic-induced fiscal scarring, which could be aggravated by foregone revenues from stimulus measures and the bigger budgets given to local governments, the Department of Finance (DOF) said on Tuesday.

While the COVID-19-related loans totaled $22.58 billion, the DOF said in a statement that the total financial cost—including interest payments —amounted to a bigger $28.91 billion or P1.47 trillion.

“The projected amount of interest payments until maturity is $6.32 billion or P320.85 billion. These loans will mature between 2024 and 2060,” the DOF said.

These higher financing costs borne by the government were among the challenges, which the DOF wanted addressed by the fiscal consolidation plan it was creating, to be pitched to the next administration to narrow the budget deficit and repay ballooning debt.

‘Economic scarring’

Finance Secretary Carlos Dominguez III also flagged the possible “long-term economic scarring” if the national government’s revenues cannot keep up with expenditures on public goods and services, which will be reduced starting next year due to the implementation of the Supreme Court’s Mandanas-Garcia ruling.

“Tax revenue losses from the pandemic-induced economic slump, the rise in debt to fund our COVID-19 response, the looming revenue impact of our economic recovery measures, and lower spending efficiency as a result of the Supreme Court decision to expand the share of [local governments] from the NTA (national tax allotment) must be adequately addressed by the next administration’s economic team,” Dominguez said.

Next year, local governments will receive over P959 billion in NTA, formerly called internal revenue allotment (IRA).

In 2018, the high court granted and reaffirmed a year later the petitions of Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr., which stated that the local government’s IRA should come from 40 percent of the collection of all national taxes — the Bureau of Internal Revenue’s (BIR) tax take, as well as the Bureau of Customs’ collections of import duties and other taxes.

Mandanas ruling

“Based on our estimates, the implementation of the Supreme Court’s 2018 ruling will yield lower economic growth because local governments spend less efficiently,” Dominguez said.

“The DOF’s estimates found that implementing the high tribunal’s 2018 decision will yield 3-percent lower economic growth because the higher [local government] allocation will be subject to a lower spending efficiency,” Dominguez said.

He was referring to the share to total disbursements of productive expenditures, which goes back to the economy, generates multiplier effects, creates jobs, stimulates demand and improves the quality of life.

He said the national government spent more than twice as efficient as local governments.

The World Bank had estimated that local governments may fail to spend as much as P155 billion from their NTA next year.

Up to this year, the IRA of local governments represented two-fifths of national internal revenue taxes collected by the BIR.

The NTA was based on the 40-percent share of local governments from all tax revenues collected three years prior, hence next year’s allotment had 2019 as base year.

Their 2022 NTA jumped from an estimated IRA of only P846.31 billion for next year without the so-called Mandanas ruling. This year, local governments’ IRA amounted to P695.49 billion.

Next year, local governments will have to spend on local infrastructure, agriculture, social welfare, health care and livelihood, among others.

While the Supreme Court’s Mandanas ruling will provide local governments with more money, they were expected to struggle spending their larger budgets to implement big-ticket programs and projects devolved by the national government.