Why government can't afford faulty PPP projects

MANILA, Philippines - The sixth floor of the Department of Finance building is an elegant glass office that overlooks the scenic Manila Bay. On most afternoons, one can see from this towering height streaks of the famed sunset glistening like a million diamond studs on the waters of the bay.

But aside from the calming view, there is nothing relaxing about being finance secretary in a country of roughly 94 million people.

Every finance secretary knows what a herculean task it is to be in charge of fixing the country’s battered fiscal health while raising revenues for the government’s projects.

The government’s fiscal health, after all, remains fragile, having been battered by the 1997 Asian Financial crisis, the 2007 global financial crisis and most importantly, the careless sovereign guarantees extended in the past to various private investors.

It is therefore crucial to ensure that this time around, PPP projects are carefully planned so that the Aquino administration does not leave behind a legacy of debts.

Finance Secretary Cesar Purisima said that the situation is improving, with the government having more fiscal space.

“Expenditures accelerated and revenue has kept pace. This shows we have fiscal space. We can pump prime if we need to,” Purisima said in an interview with The Star in August.

But although the situation is improving, it remains critical.

To date, the government does not have enough revenues to finance its expenditures.

As of this writing, the government’s budget gap stood at P39.249 billion in July, wider than the P26.482 billion posted in the same month last year.

The July figures brought the January to July budget deficit to P73.731 billion, still way below the programmed ceiling for the year of P279 billion or 2.6 percent of gross domestic product (GDP).

The end-July budget gap of P73.731 billion was wider than the P43.713 billion deficit recorded in the same period last year.

Outstanding debt

Against this backdrop, the government has a total outstanding debt of P5.100 trillion as of end-June, up by P290.50 billion or 6.04 percent than the year-ago level of P4.810 trillion, latest data from the Bureau of the Treasury (BTr) showed.

Compared to the debt stock as of end-May, the end-June debt was lower by P46.67 billion.

Of the P5.100 trillion, the government owed P3.050 trillion to domestic creditors and P2.050 trillion to foreign lenders. On a year-on-year basis, domestic debt went up but the government’s foreign loans were nearly unchanged during the period, Treasury data showed.

Theoretically, at this level, each of the 94 million Filipinos is indebted by P54,255 to foreign and domestic creditors.

According to the Treasury, domestic debt rose by 10.56 percent or P291 billion to P3.050 trillion as of end-June from P2.758 trillion recorded a year ago.

Foreign debt, meanwhile, was nearly unchanged at P2.050 trillion as of end-June from P2.051 recorded a year ago.

Bulk of debt owed to foreign creditors comprised of P1.235 trillion in bond issuances such as the equivalent of P1.056 trillion in US dollar bonds; P53.31 billion in Japanese Yen bonds; P26.35 billion in Euro bonds and P98.88 billion in global peso-denominated bonds.

The total outstanding debt of the government comes from debt securities sold to local investors, foreign bonds issued by the government and direct loans availed by government agencies and relent to government-owned and controlled corporations (GOCCs).

Guaranteed debt

The total guaranteed debt of the government or debt incurred by state agencies and corporations but guaranteed by the government has been running at more than P500 billion for the past four years.

In 2008, the total outstanding guaranteed debt of the government stood at P545 billion, data from the Treasury showed.

This went up to P614.133 billion in 2009 and declined to P549.808 billion in 2010. In 2011, it amounted to P573.372 billion.

As of end-June 2012, the total guaranteed debt of the government amounted to P544.911 billion, down P50.03 billion or 8.41 percent from the end-June 2011 level of P594 billion.

National Treasurer Roberto Tan, in an interview with The Star, said guaranteed debt represents the guaranteed financial obligations of the government but may not necessarily translate to actual debt unless the situation calls for it.

The Aquino administration hopes to slash the budget deficit to P279 billion this year or 2.6 percent of gross domestic product (GDP) and to P241 billion or two percent of GDP in 2013.

In 2013, the government’s total outstanding debt is projected to climb to P5.8 trillion next year but the debt ratio is expected to fall below 50 percent.

The P5.8 trillion total outstanding debt is equivalent to 49.5 percent of gross domestic product (GDP).

Closely watched by investors and credit agencies, debt-to-GDP ratio is an indicator of the country’s credit worthiness.

The ratio has hovered above the 50-percent level, peaking at 84 percent in 2004 because of high debt but the debt burden has already been doing down.

Indeed, the numbers are overwhelming and every peso spent in interest payments also means a peso less for social services such as education and public health.

One can only hope that the PPP program would not add to the government’s already heavy debt burden.