IT'S A TRAP: Youth rep cautions against incurring new foreign loans from World Bank, ADB for relief and rehabilitation

Tuesday, November 19, 2013

Kabataan Partylist Rep. Terry Ridon cautioned against incurring new foreign loans from the Asian Development Bank and the World Bank worth $1 billion, saying that the added debt burden will only result to a more debilitating fiscal situation in the future.

The two international funding institutions reportedly earmarked $500 million each for the rehabilitation and reconstruction of disaster-ridden areas in the Philippines, following the onslaught of Super Typhoon Yolanda.

According to the National Economic and Development Authority (NEDA), the said loans will be “soft loans,” which means that its use is not pre-determined and can be used to plug funding requirements in the relief and rehabilitation of devastated areas.

However, the additional $1 billion foreign debt will only increase the projected outstanding debt of the national government from the currently projected P6.32 trillion to P6.37 trillion.

According to the Department of Budget and Management’s 2014 Budget of Expenditures and Sources of Financing (BESF), the total outstanding debt of the Philippines for 2013 stands at P5.86 trillion. Initially, the government intends on borrowing and financing from GAD Capital and other sources, an additional P1.05 trillion from domestic sources and P94.6 billion from foreign sources next year, making the projected outstanding domestic debt by yearend of 2014 reach P4.3 trillion and foreign outstanding debt P2.009 trillion. This would result to an estimated P6.32 trillion outstanding debt of national government by yearend of 2014.

However, if the pledged $1 billion loan (converted to P43 billion using BSP reference rate as of May 2013) from World Bank and ADB comes in, the projected outstanding foreign loan by yearend 2014 would spike up to P2.052 trillion, and would increase the outstanding yearend national government debt to roughly around P6.37 trillion.

Debt burden per capita (using the National Statistics Office’s 99-million population estimate for 2014) would also increase by P434.36, from the currently projected P63,859.31 to P64,293.67.

“This is a rough estimate and does not include adjustments on principal and interest payments. However, what is clear is that additional foreign loans in times of disaster may sound enticing, especially as funds are needed to rebuild and pump-prime the distraught economy. However, a higher debt burden posts long-term risks for the country. We should keep in mind that it’s debt and not a grant, and the government needs to pay it sometime in the future,” Kabataan Partylist Rep. Terry Ridon said.

“As debt servicing is automatically appropriated in our country, higher debt would always mean less funding for economic and social services in the future, including less funding for disaster preparedness in the coming years. Entering the cycle of debt does not uplift the country in any way, but further subjects us into a spiraling financial crisis,” Ridon explained.

Ridon also noted that even NEDA General Arsenio Balisacan has noted that financing of rebuilding and rehabilitation efforts is not the problem at present, but rather the fast deployment of resources.

“The government could easily tap funds from various sources – donations and grants, not loans. The major problem that still besets the government is how it will maximize these funds in order to deliver immediate relief and rehabilitation to the devastated areas. It’s swiftness and efficiency of service that is lacking in the current relief and rehabilitation efforts, which of course is the effect of not having a comprehensive disaster rehabilitation plan,” Ridon ended.###