Government Likely Raising 2013 Borrowings

BY: CHINO S. LEYCO June 28, 2012 MANILA BULLETIN

Summary of the Article The Aquino administration will seek a 4 percent increase in its budget for next year and keep the deficit to two percent of the domestic economy, according to a Department of Budget and Management (DBM) official. Under its proposed 2013 national budget, which will be presented to President Aquino, the government's economic managers are looking at P757.3-billion gross borrowings, higher by 4 percent compared with P727.4billion ceiling this year. As a strategy, Finance Secretary Cesar V. Purisima said that the Philippine government will maintain its presence in the overseas debt markets. The government plans to borrow some P727.4 billion from domestic and offshore sources this year to finance the budget shortfall seen hitting 2.6 percent of the total economic output.

Reaction about the Article Many of Asian countries are experiencing an economic boom, and Philippines is one of them. Philippines economic report reveals a lot about this nation's rise to economic progress. In recent years, bolstered by industries like business process outsourcing, Philippines have been able to register decent economic growth. However, current global financial crisis and economic meltdown has somewhat affected economic growth of Philippines.

According on my own research about the debt of the Philippines, the average maturity of domestic debt stretched to 9.21 years as of last year from 6.7 years while the average maturity of foreign obligations extended to 11.36 years from 11.34 years. The government has also been successful in shifting the countrys debt profile in favor of the domestic debt market as part of efforts to cushion the country from foreign exchange risks.

They said that high external debts are believed to have harmful effects to the economy. By having a big external debt, the country might focus too much and allot a big part of its budget to the payment of the debt and forget the other aspects of the country that it has to work on. Also, the reputation of a country is also at stake when external debt is looked at and may discourage investments to enter into the country. High external debt also tends to precipitate crises - if, at some point, investors lose faith in the Philippines' ability to service its external debt or its ability to roll the debt over, they would be expected to pull capital out of the country. That would lead to a decline in the Peso, making the debt burden (which is largely denominated in dollars) more onerous. This could further undermine the confidence of investors in the Philippines, leading to further capital flight and further Peso declines, creating a self-fulfilling prophecy of eventual default. According to the news, Governments debt-to-GDP ratio, a measure of the states capacity to settle its obligations, dropped to 50.9% last year from 52.4% in 2010. The 2011 result was the lowest since 1998 when the ratio fell to 48.1%. Generally, Government debt as a percent of GDP is used by investors to measure a country ability

to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

In my own opinion, if the Philippine government continue to manage our liabilities toward achieving our goals of lengthening our maturities, reducing our foreign exchange risks, lowering our borrowing costs and reducing the bunching-ups, the government expects the budget gap at P280 billion this year from P197 billion last year as it strives to boost spending.