DOF clarifies debt burden only a tenth of the 2023 budget

Finance Secretary Benjamin Diokno clarified on Wednesday, (August 24), that allocations for debt burden make up only around a tenth of the proposed 2023 National Budget, contrary to an Inquirer article published on August 23, 2022 that incorrectly cited debt burden as one-third of the next fiscal year’s budget.

“Only 11.6 percent or P611.0 billion of the P5.268 trillion proposed 2023 National Budget is allocated for debt burden. The amount includes P582.3 billion for Interest Payments and P28.7 billion for Net Lending. This is much lower than the P1.6 trillion debt service – equivalent to 29.8 percent of the proposed budget – cited in the article, which erroneously included the principal amortization of P1.020 trillion as part of expenditures,” Secretary Diokno explained.

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

He added that the principal amortization 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.

According to Secretary Diokno, the proper measure of the debt burden component of the budget includes only interest payments and net lending as reflected in the Department of Budget and Management’s (DBM) People’s Budget primer.

Secretary Diokno said that while the share of debt burden in the National Budget is 0.8 percentage points higher than this year’s 10.8 percent, it remains lower than 2021’s 12.4 percent.

In a statement before senators, Secretary Diokno assured that the national debt remains within manageable levels.

He said that most of the national debt is long term, spread out, and set at the lowest possible rate.

As of end-June 2022, the national government debt stood at P12.79 trillion, equivalent to 62.1 percent of GDP.

Under the Marcos administration’s Medium-Term Fiscal Framework (MTFF), the government aims to bring down the country’s debt-to-GDP ratio to less than 60 percent by 2025, and cut the deficit-to-GDP ratio from the current 6.5 percent to 3.0 percent by 2028.

Secretary Diokno said that the structural reforms and enhanced tax system instituted by the Duterte administration ensures that the government will be able to meet its obligations.

The MTFF also proposes measures that will further improve tax administration and enhance the fairness and efficiency of the tax system.

Secretary Diokno is confident that government revenues will continue to pick up and the deficit will decrease on the back of a strong economy, as demonstrated by a broad-based 7.4 percent gross domestic product (GDP) growth rate in the second quarter of 2022.

Among the targets set under the MTFF is an economic expansion of 6.5 to 7.5 percent in 2022. Economic analysts consider this goal to be the highest projected growth rate among the ASEAN+3 countries, which include Japan, South Korea, and China.

“The implication is clear: we do not have to borrow as much as we did during the crisis years,” said Secretary Diokno.