Debt truth: Is every Filipino indebted by P128,571?

MANILA, Philippines — Public relations practitioner Cedrick Basco uses a credit card for some of his purchases, while Grade 12 student Tiffany Carino sometimes lends a few hundred to her classmates in need.

They may differ in age, life experience level and net worth. Still, both individuals are aware of the growing debt of the Philippines and the idea of owing something they did not directly benefit from.

The record P15.3-trillion outstanding obligation of the Philippines as of end-May is undeniably too big to comprehend, more so to pay.

To make it easier, the debt per capita indicator is often used. This is the measurement of government debt per citizen.

Theoretically, each of the 119 million Filipinos is indebted by P128,571. This is the amount every Filipino needs to pay if the government wants to settle the entirety of its obligation.

This also means that Cedrick has a debt of P128,571 even if he does not max out his credit card. This is also Tiffany’s debt, even if she has yet to finish school and find a decent job.

Sadly, both believe they are in the same situation of being indebted by that much money.

“Every Filipino has a part in paying the country’s growing debt. The government needs the taxes they collect from Filipinos to pay these debts,” Cedrick shared.

“So even those newly born children have to pay these debts in the future,” he said.

The 18-year-old Tiffany emphasized that debt, in general, is more felt by low-income families, which is evident in elevated inflation and low salaries, among others.

“Everyone is struggling because of the country’s debts; that’s why the government cannot prioritize the essential needs of Filipinos,” Tiffany said.

“It’s the debt of the country that hinders many Filipinos from progressing in life,” she said.

What’s the truth?

National Treasurer Sharon Almanza, the principal custodian of the financial and physical assets of the government, said other countries and economic surveillance monitoring units use less per capita metrics for debt assessment.

This is because debt levels are usually gauged against the borrower’s capacity to pay, either with current income for short-term borrowings or lifetime income for long-term borrowings.

Almanza argued that the debt-per-capita concept is commonly used as a statement or talking point about the intergenerational fairness of current fiscal policy but is not an accurate economic indicator.

“It assumes that individual taxpayers and citizens, in general, are liable for the country’s outstanding debt, which is partly true, but also ignores that the benefit of responsible borrowing also redounds to the citizens in the form of higher income or future earning potential,” Almanza told The STAR.

“Individualizing debt diminishes the main advantage of sovereign debt over household debt, that is: the former lives in perpetuity and hence can delay liquidation of its debt indefinitely for as long as lenders do not doubt its solvency, while the latter group has limited lifetime and must settle debts within each individual’s productive years,” she said.

Ateneo de Manila University economist Leonardo Lanzona maintained that the debt per capita metric is acceptable but warned that such a measure tends to decline as the population grows.

Lanzona said debt by working-age persons could be better considered since this allows the government and stakeholders to see how changes in age composition would affect the country’s debt situation.

“Since a working person is more likely to save, this also gives us a better idea on the sustainability of the debt,” Lanzona told The STAR.

“On average, P128,571 is what each one owes, but this is mostly conceptual. What is important is whether it is declining or increasing,” he said.

Debt-watch monitor Freedom from Debt Coalition (FDC) secretary general Rovik Obanil, for his part, noted that debt per capita helps visualize the debt’s size and make it feel more “personal.”

Research and advocacy group IBON Foundation acknowledged that the popular metric of dividing debt by the population or families has weaknesses as it does not indicate the capacity to repay, debt sustainability, or even accurately portray the burden of debt repayments.

However, IBON executive director Sonny Africa said its strength lies in providing information on the general trend of debt stock.

“Most importantly, it underscores that Filipino families ultimately bear national government debt, which is something every Filipino should be concerned about,” Africa told
The STAR.

“No other metric connects the national debt to ordinary Filipinos so directly and intuitively,” he said.

IBON argued that complaints about the debt per capita metric usually come from the government, which wants the public to refrain from reacting to the growing national debt.

Sometimes, Africa said, it also comes from economic nerds who look at debt from a technical perspective and may still need to appreciate the value of increasing public interest in economic issues.

The real deal

Regardless of the metric, the truth remains that the country’s debt remains on an uptrend.

Data showed that the Marcos administration had incurred P2.557 trillion in debt for the past two years since it assumed office.

The average monthly increase in debt is estimated at P101.2 billion, higher than the P95.1 billion monthly average borrowed by the Duterte administration.

The government’s stand has always been that debt is okay as long as the economy grows faster than the debt level. But for how long?

Lanzona said it may be hard to see if this is true, considering that the debt has continually risen and is not used for productivity increases.

“There is nothing wrong with the debt if the borrowed funds are used productively. The ratios don’t matter if our growth is higher than the average interest rate we are paying. But since growth is declining, it is unlikely that we can sustain our debts,” Lanzona said.

FDC has also been critical of the debt sustainability narrative based on continued high economic growth, especially as economic expansion is subject to many factors given volatile international and domestic markets.

“To premise the argument for high levels of borrowing on the assumption that growth would remain uninterrupted is like policy-making based on sheer optimism,” Obanil told The STAR.

?Transparency

To determine the truth about public debt means there is a need to be transparent about how the government acquires and eventually uses the debt.

According to Africa, the public’s knee-jerk antagonism to bloating debt indicates how much the government has to do to be more transparent about its borrowing and spending.

Africa said trust and credibility take effort, and the burden of initiating and sustaining relevant efforts is necessarily on the government, whose essence is public service.

Specifically, the government should be more open to debt service repayment profiles feasibility studies and detailed budgets for foreign-funded and big-ticket infrastructure projects.

For FDC, Obanil said the group has issues with the government’s insistence on accounting only for interest payments when reporting on debt servicing, as it can be deceiving and hides the actual cost of indebtedness on the country’s fiscal flexibility.

“If we want to be fully transparent about the true size of our debt payments, principal amortization should be included as it gives us a complete picture of how much is allocated. This is important because it also gives us an idea of how much will be available to fund the national budget,” Obanil said.

Resilience

Almanza maintained that the country’s debt profile remains resilient as most of the debt is issued domestically and in the local currency, thus minimizing risks from sharp foreign exchange fluctuations and improving debt servicing predictability.

Of the total outstanding debt, 67.3 percent is in peso, and only 32.7 percent is in foreign denominations.

Almanza said the maturity profile is also consistent with low refinancing risks as the government prioritizes issuing bonds within the belly to the long end of the curve.

About 92 percent of the debt is on a fixed interest rate basis, limiting the pass-through of monetary policy surprises and risks of underestimating the budget for interest expenses.

“In terms of interest costs, the country enjoys favorable rates as strong macroeconomic fundamentals and the government’s adherence to desirable policies sustain positive market perceptions of risks surrounding the country’s debt,” Almanza said.

Almanza pointed out that financial markets are pricing in the transition toward monetary easing by central banks.

The US Federal Reserve and the Bangko Sentral ng Pilipinas have signaled that their policy tradeoffs warrant cuts to the policy rate, which has been weighing on economic growth.

Almanza said the government has carefully designed its fiscal adjustment plan to balance near-term growth and long-term debt sustainability, refraining from measures that may derail consolidation and lead to more disruptive adjustments.

The country’s debt profile may be resilient, which sounds reassuring, but Filipinos being resilient has been an overused phrase that often refers to being able to pick themselves up after any calamity, hardship, or challenge.

To be indebted can be considered resilient, especially for those who borrow for their families. One way or another, every Filipino, regardless of age and social class, is indebted to something or someone, whether that’s P10,000 or P128,571, or even more than the country’s debt per capita.