₱9-trillion infrastructure program will not drive PH into debt: Budget Department

Metro Manila (CNN Philippines, July 14) - As President Rodrigo Duterte pushes through with his ambitious ₱9-trillion infrastructure program, Budget Secretary Benjamin Diokno assured Friday that the country's debt and fiscal positions remain sustainable.

"The government's fiscal strategy is manageable and sustainable, as the expected gains from infrastructure development shall fuel economic growth," Diokno said in a statement.

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"This growth will outpace the debt burden, and suitably, the Philippines will not be plunged into unreasonable indebtedness," he added.

He cited the low levels of debt-to-GDP ratio, the high levels of gross international reserves, and a low interest rate regime as reasons for government's confidence in what it considers its sound fiscal strategy.

Decline in current and expected debt-to-GDP ratio

Funding for the infrastructure projects will come from "a combination of taxes, non-tax revenues, [and] borrowings, both external and domestic," Diokno said in a press briefing.

Any borrowing would favor an 80-20 scheme, favoring domestic sources over foreign ones, he said.

Duterte's infrastructure-centric development program known as "Build, Build, Build" has drawn comparisons with big-ticket infrastructure projects under the regime of former strongman President Ferdinand Marcos and his wife Imelda, who was notorious for her so-called "Edifice Complex." The Marcos' projects spiralled into a foreign debt crisis.

But Diokno defended Duterte's program.

"That was the mistake of, for example, of Mr. Marcos then. He was heavily dependent on foreign sources," Diokno said, adding that the Duterte administration's "borrowing mix 80-20 will minimize the foreign exchange risk."

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The country's deficit would grow to three percent of Gross Domestic Produc (GDP) until 2022, but this and the debt burden will be offset by the projected 7 to 8 percent GDP growth until 2022, the Budget Department said in the statement.

Diokno said he expected the country's debt-to-GDP ratio to decline to 38.1 in 2022 from 40.6 percent in 2016, when Duterte began his six-year term.

"With that kind of debt-to-GDP ratio...the Philippines will gain the envy of many developed and developing economies," Diokno said in the news briefing.

The Budget Department added that the Philippines' external debt has decreased to $73.805 billion as of March 2017 from $77.474 billion in 2015, highlighting the country's capacity to pay off its debts.

Sufficient foreign reserves

The country's gross international reserves (GIR) can cover 11.7 months worth of imports, Diokno said. The reserves stand at $81.4 billion, according to the Bangko Sentral ng Pilipinas (BSP).

The 11.7-month cover from reserves is way over the minimum three-month buffer. "In the past, whenever there was a domestic or international crisis, the Philippines will run out of foreign exchange to service its foreign debt. Not anymore, okay. Crisis or no crisis, we are okay," Diokno said.

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The inflow of dollars to the country was also buoyed by steady remittances from millions of Overseas Filipino Workers and the business process outsourcing industry.

OFW remittances rose by 4.7 percent from a year ago to $10 billion as of April 2017, says the Bangko Sentral ng Pilipinas. The Trade Department projected $22 billion in revenue in 2016 from the booming Business Process Management industry.

The government also must take advantage of favorable financing terms due to low domestic interest rates which encourage investment and promote economic expansion, the Budget Department statement said.