Monday, January 14, 2008 Oledan: Choices By Radzini Oledan Slice of Life
THE Country is expected to spend about $5.63 billion on foreign debt servicing. Of the total expenditures for foreign debt, $3.06 billion would represent principal amounts while interest expense would account for $2.57 billion.
Three key international credit rating firms have expressed concern on the country's outstanding financial obligations saying that the country has not reduced enough of its debt.
The US-based firm, Moody's Investors Service, which rates the credit worthiness of countries and companies said the Philippines' public finances are still vulnerable to external shocks, despite advances made in fiscal consolidation during recent years.
Bureau of Treasury data showed that debt payments by the National Government declined in November due to lower interest rates and the rapid appreciation of the peso. The National Government's debt servicing reached P28.466 billion that month, or P2.846 billion lower than the P31.312-billion paid out last October. This brought the 11-month payments to P591.778 billion.
Debt servicing refers to payments of both interest and principal. The debt service burden excludes rescheduling or refinancing of existing debt and conversion of debt to equity.
Last year, total debt servicing reached P854.370 billion.
The finance department said that due to low interest rates and a stronger peso, the government saved P32 billion at end-November this year in debt servicing costs.
The lower-than-expected interest rates meant the government would spend less on debt servicing; both for domestic and foreign loans, while the appreciation of the peso trimmed the government's foreign-currency denominated debt in peso terms.
Government's total spending in the first 11 months reached P1.032 trillion.
The peso averaged 42.798 during the period, and has been one of the strongest Asian currencies this year.
Yet, there is nothing to celebrate about.
Every centavo spent on debt servicing is a resource that could have been use to meet the basic needs for food, clean water, shelter, education and health.
Every centavo appropriated to debt servicing means a cut on basic services that should rightfully be enjoyed by children. Access to clean water, adequate housing, basic health care and quality education are sacrificed to prioritize huge government allocations for debt payment.
Traditionally, debt sustainability has been judged along narrow financial lines. A country's ability to pay is assessed primarily by looking at its income from export earnings, with little or no account taken of the demands on government funds. Debt service payments have taken precedence over providing people with a basic standard of living.
There may be a need to free up the resources to respond to the realities on the ground. It could also provide the breathing space needed to concentrate on required institutional and infrastructure development.
The obsessive focus on macroeconomic variables and ill-advised borrowing would delay short and medium term growth. Over-indebtedness should not be a choice.
