Philippines: Government hikes budget for debt payment

MANILA, Philippines — The government plans to increase the share of debt burden in the proposed record P5.768 trillion budget for next year.

Based on the Budget of Expenditures and Sources of Financing (BESF), 12.1 percent of the budget or equivalent to P699.2 billion will be allocated to settle debts for 2024.

This is slightly higher than the 11.6 percent share or about P611 billion this year.

Next year’s debt burden includes P670.5 billion for interest payments and P28.7 billion for net lending. These two are the proper measures of the debt burden component of the budget.

In terms of debt service, the government targets to settle a record-high P1.91 trillion in debts, divided into P670.5 billion for interest payments and P1.24 trillion for principal amortization.

The principal amortization of debt is not included as an expense item under any accounting standard, whether in the private or public sector, as it is the settlement of debt obligations incurred from expenses already recorded in the past.

The principal amortization also does not contribute to additional debt because debt obligation is only transferred from an old creditor to a new creditor in the process of refinancing.

Finance Secretary Benjamin Diokno said interest payments have been on a decline, with its average share to state expenditures now at 10.1 percent from 2016 to 2022 from a high of 23.3 percent from 1986 to 2015.

“This allows us to spend more on socioeconomic programs and projects in our priority sectors such as education and infrastructure,” Diokno said.

“The responsibility for the debt is just moved from the previous lender to a new lender during the refinancing process. As a result, this does not add to the debt burden,” he said.

Diokno earlier said that the national debt remains within manageable levels.

The national debt stock is at its highest level to date of P14.15 trillion as of end-June.

This is expected to increase to P14.62 trillion by yearend and further rose to P15.84 trillion by end-2024.

Nonetheless, Diokno said the economic team is committed to implementing the medium-term fiscal framework which targets to bring down the debt as a percentage to the overall economy to less than 60 percent by 2025.

This, as the government banks on the continuous implementation of improvements to tax administration and efficiency of key tax reforms.