Why does the Philippines need billions in foreign loans?

ABS-CBN News

Posted at Apr 30 2021 03:37 PM | Updated as of Apr 30 2021 04:52 PM

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The Philippines' foreign debt has ran up to $18.4 billion, as it struggles to contain the spread of the COVID-19 pandemic, the Department of Finance said on Friday. 

The government takes loans yearly because it "forms part of efficient governance," said Finance Undersecretary Mark Dennis Joven. 

This is because the interest rate charged from loans are "lower than the growth that we have achieved so far" by using the debt, he said in a public briefing. 

 "Kung nakautang po tayo ng pera, tapos nagbabayad po tayo ng interest at say kunwari .01 percent per annum, pero iyong growth na nadi-derive natin from this pera na ginamit natin, we can generate, say kunwari 5 to 6 percent per annum, then it’s more efficient," Joven said. 

(If we borrow money and pay an interest of .01% per annum for example, but the growth that we derive from this money, we can generate, say, 5 to 6 percent per annum, then it's more efficient.)

"It essentially makes the economy grow faster and this has been happening for the last, say, last 20 to 25 years," he added. 

He continued, "Now the question is: Bakit mas malaki iyong nautang natin during the pandemic?"

(Why did we borrow more during the pandemic?) 

Joven said during last year's lockdown to arrest COVID-19 infections, some businesses stopped operating, "which also means that consumption is not moving ahead as expected." 

This, in turn, reduces the government's expected tax revenues, he said.

At the same time, the government needs to distribute cash aid to the poor and provide funds to increase healthcare capacity, Joven said. 

"Essentially, kung hindi po tumatakbo iyong gobyerno or may lockdown or limited lockdown mababawasan po iyong tax revenues, while at the same time tumataas po iyong gastos," the finance official said. 

"Kailangan pong i-fill iyong gap in the short run." 

(Essentially, if the government is not running, or there is a lockdown or limited lockdown, the tax revenues are reduced, while at the same time, the expenditure increase. The gap needs to be filled in the short run.) 

Debt "is not only a uniquely Philippine problem," Joven said, adding that all Southeast Asian countries "have increased their foreign borrowings since last year."

Multilateral funders gave years of grace period for the Philippine loans, which "by that time, we expect the economy to have recovered already and the world to have moved away from this pandemic situation." 

"Going back to normal, it would really not be a big problem to pay for all these debts," he said. 

President Rodrigo Duterte said the Philippines might return to normalcy in 2023.