Dominguez: the next president faces huge debt, high inflation, higher inequalities and climate risks

Finance Secretary Carlos Dominguez III. (File photo by TOTO LOZANO / Presidential Photographers Division)

Manila, Philippines – What economic challenges will the next Philippine president face? Finance Secretary Carlos Dominguez III on Thursday identified four pressing concerns – rising domestic debt, high global inflation, worsening inequalities, as well as climate change – that needed to be addressed so that the Philippine economy could regain its pinkness. health after the pandemic.

Dominguez, who heads President Rodrigo Duterte’s economic team, said in a speech that the current administration “will ensure that the incoming presidency is effectively assisted during the transition period to resolve four key issues that will impact the economic stability of the Philippines ”.

“These include ways to prudently manage the debt we have accumulated and increase our GDP. [gross domestic product] at a rate greater than 6 percent per year, as we have done, ”Dominguez said.

As a reminder, the government borrowed more amid the COVID-19 crisis due to declining revenue generated by the pandemic-induced economic slump last year, but higher spending was required to give distributions during closures and strengthen the health system.

This increase in borrowing has pushed up the Philippines’ debt-to-GDP ratio, which reflects an economy’s ability to repay its bonds, to 54.6% in 2020, from a record high of 39.6% in 2019.

At the end of September, the debt-to-GDP ratio climbed again to a 16-year high of 63.1%, above the 60% level considered by rating agencies to be manageable among emerging markets.

The debt ratio was expected to reach 59.1% by the end of 2021 and climb to 60.8% in 2022. The share of debt to the economy is expected to decrease to 60.7% in 2023 and 59.7% in 2024.

The national government debt stock will rise further to a record 13.42 trillion pesos by the end of 2022, compared to 11.730 billion pesos scheduled at the end of this year.

The Washington-based Institute of International Finance (IIF) had warned that emerging markets like the Philippines, which wanted to ease their debt burden alongside the economic recovery, could face slower growth as the economy recovers. they would reduce their public spending.

As such, the DOF was currently working on a “strategy plan” of fiscal consolidation strategies – possibly including new or higher taxes – that the next administration could implement to generate more revenue.

Besides debt, Dominguez said that “we have to deal with the problem of inflation caused by shortages in the world”.

Headline inflation in the Philippines has exceeded the government’s 2-4% target range for a manageable rate of increase in commodity prices this year due to expensive food, especially pork due to the shortage. supply, not thanks to the African swine fever (ASF) epidemic. The Bangko Sentral ng Pilipinas (BSP) nonetheless expects inflation to slow down and come back within target next year with pork and fish imports booming to increase food supply .

But Capital Economics’ senior economist for Asia, Gareth Leather, said in a Nov. 22 report that “inflation has not become a concern in emerging Asia the way it is. has done in the rest of the emerging world, in part because food price inflation in Asia is much lower, but also because the region has suffered much less disruption from the pandemic than other emerging markets. “

The third challenge, according to Dominguez, was that “we must deal with the inequalities exacerbated by the COVID-19 pandemic – both within the country and between countries”.

A World Bank report this week said the most vulnerable sectors like the poor, women and schoolchildren would take longer to recover from the pandemic-induced crisis, even as the Philippine economy as a whole. was already on the mend.

Finally, Dominguez said that “we must tackle climate change without stretching the country’s fiscal space”.

One of the countries considered most vulnerable to climate change, the Philippines had made an ambitious commitment to reduce greenhouse gas emissions by 75% over the next 10 years as part of the Accord. Paris.

Dominguez, who led the Philippine delegation to the 26th meeting of the United Nations Conference of the Parties on Climate Change (COP26) in Glasgow, UK, wanted to take the rich and industrialized countries that have further polluted the planet in their climate finance. commitments to ease the burden on developing countries like the Philippines.

While waiting for the next administration, Dominguez said that “for the remainder of President Duterte’s term, we will rapidly modernize governance; accelerate the deployment of the infrastructure program; and pursue market-friendly and investment-attractive reforms. “

“To maximize the impact of these interventions, we urge our entrepreneurs to continue to innovate in a sustainable way by switching to the circular economy and using more renewable energies,” said Dominguez.

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