Ex-BSP official: Diverting public funds to Maharlika means higher taxes, more loans

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Metro Manila (CNN Philippines, May 31) — The government will have to compensate for the public money that will be put into the proposed Maharlika Investment Fund, which could be in the form of higher taxes, a former Bangko Sentral ng Pilipinas (BSP) official said Wednesday.

“Under the one single fund concept, whatever public money is earmarked for the Maharlika Investment Fund and away from the national budget, the national government will have to compensate for that. And to be able to do that, the national government will have to borrow or to impose higher taxes or more taxes. There is no other way,” retired BSP Deputy Gov. Diwa Guinigundo he told CNN Philippines’ The Source.

The Senate early Wednesday morning approved on final reading the proposed Maharlika Investment Fund Act of 2023.

Under the Senate-approved version, part of the fund’s seed capital will come from the Landbank of the Philippines (₱50 billion) and the Development Bank of the Philippines (₱25 billion).

BSP dividends will also form part of the funding.

Guinigundo said the need for the government to fill in the gap will only worsen the financial problems of the country.

“Instead of addressing and mitigating the problems of high fiscal deficit and increasing level of public debt, this Maharlika Investment Fund may, in fact, worsen it,” he said.

Reducing public spending to compensate the lost allocation is a "no-no," Guinigundo noted.

"We want to make sure that public spending promotes economic growth so we don't want to cut back on our spending, especially on infrastructure and social services," he added.

Meanwhile, diverting the allocation of these funds would affect the budget for programs like infrastructure, and social and economic services like education and health facilities, he said.

Furthermore, the board of directors to be formed under the proposed measure will bypass the authority of the Congress when it comes to determining which projects will be prioritized under the national budget, he noted. Such an arrangement is not good in a democratic country, he added.

Guinigundo said he believes the passage of the Maharlika bill, which was earlier certified as urgent by President Ferdinand Marcos Jr., was ill-timed given the volatile economic situation domestically and globally.

“I think the timing is quite off," he said. “A Maharlika sovereign wealth fund will be good if we have surplus funds. The problem is we don’t have any, and the certification of this bill as urgent, I think, is also counterintuitive in the sense that, precisely, the global economy is more volatile and more uncertain.”

Citing the International Monetary Fund, Guinigundo said the current geopolitical situation is uncertain, volatile and fragmented.

He said money to be allocated to the Maharlika fund should instead be used to implement economic and social programs that will address the most pressing issues in the country, like poverty and inflation.

Following the bill's passage in the Senate, a bicameral conference will be held to finalize the amendments to the proposed measure before it is transmitted to Marcos for his signature.