MANILA - The next administration will face higher debt, inflation and inequality due to the COVID-19 pandemic, said Finance Secretary Carlos Dominguez III on Wednesday.
The Philippines will also face stiffer competition from other economies that were able to rebound faster from the effects of the pandemic. New realities brought about by climate change would also pose challenges, the Finance chief said.
But Dominguez added that the next admin will be in a “very good position” thanks to the fiscal prudence exercised under President Rodrigo Duterte's leadership, which built on the “the success of [President] Noynoy Aquino in preserving and conserving finances.”
During a media forum Wednesday morning, Dominguez said the country’s debt will rise to around 63 percent to 64 percent of its GDP, from just 29 percent in 2019.
To bring the debt level to around 40 percent of GDP, the Philippines will need to grow 6 to 6.5 percent per year, he said.
“That is the main challenge of the next administration.”
The second major challenge after debt was inflation, which mainly comes from overseas, according to Dominguez.
“Inflation is being imported. There is inflation all over the world.”
The Finance chief said faster inflation is being driven by higher fuel prices, transportation and logistics costs. Pent-up demand following the pandemic has also led to shortages of goods from microchips to cars.
“So how will the next administration will deal with inflation is very crucial.”
A third major problem, according to Dominguez, is the widening disparity “between the haves and have nots” because the shutdowns imposed during the pandemic left many with reduced incomes.
Dominguez said that while the government was “very successful in the first 3 years” in reducing poverty, “it has gone back up.”
“Now how will the next administration address that inequality?”
This inequality also extended to countries, as some economies recovered faster than others.
“That might mean that we may have to change our export strategies. So those are issues dealing with domestic inequalities and international inequalities.”
Last but not least, Dominguez said the next administration must take climate change seriously.
“Climate change is happening in the Philippines, I am told by our experts that our seas are rising at a rate 4 times faster than other countries.”
Dominguez, who also sits as Chairman of the Philippine Climate Change Commission representing President Duterte, said he has observed these changes personally in his own hometown.
"Where I’m from Davao, the weather pattern has really changed. The banana industry has gone down. I don’t know because of weather or disease but things are changing.”
Despite all these challenges, Dominguez said Duterte’s successor is in “a very good position”.
“All throughout this difficult time, we have tried to preserve the financial strength of the Philippines, and to use the financial strength that President Duterte has built up, which I must admit was building on the success of [President] Noynoy Aquino in preserving and conserving finances. We built on it and tried to improve on it which put us in a very good position,”
He said proof of this financial strength was that the Philippines did not suffer a credit ratings downgrade despite the effects of the pandemic.
Revenues will return to pre-pandemic levels next year, he said. The budget deficit as a percentage of GDP is projected to decline starting next year, as revenues start to recover and grow at a faster rate than expenditures.
“This puts less pressure on our borrowing requirements and debt sustainability thresholds.”
Dominguez also noted that the Philippine government still has the flexibility to respond to any needs created by the Omicron variant.
"Our finances are strong enough for us to be flexible. I don’t know the new variants, how virulent they will be, how necessary it will be to provide fiscal support, but we are ready.”
After shrinking by a record 9.6 percent last year, gross domestic product posted positive year-on-year growth in the second quarter, with third quarter growth beating expectations.
The World Bank on Tuesday, also raised its forecast for the country, but warned that the omicron variant still posed a threat to recovery.