A debt cap bill has been filed in the Senate, setting national indebtedness at an amount not more than 50 percent of the national Gross Domestic Product.
Its author, Senate President Pro Tempore Ralph Recto, said the cap will not “handcuff the government” from securing loans to finance infrastructure projects “but merely sets the red line in the debt meter that this and future governments must not hit.”
For 2018, debt-to-GDP ratio stood at 41.8 percent, on a debt stock of P7.3 trillion and GDP value of P17.4 trillion.
The national debt, however, has climbed to P7.9 trillion by May this year, and is on track of breaching the P8 trillion mark by end of this year.
Using 2018 debt and GDP figures, Recto explained that government was “P1.4-trillion away” from his proposed debt cap that is equivalent to half of the GDP.
“But it is better to impose a ceiling by law to shield the government, present and future, from piling up debt,” Recto said. “We set it at 50 percent of GDP, with the prohibition that the national credit card shall not be maxed out.”
“Having this limit will force government to observe credit discipline, constantly monitor the debt needle, and deliver them from the temptation of accepting donor-driven projects of dubious benefits to the people,” Recto said.
In Recto’s bill, total indebtedness includes those backed by the sovereign guaranty of the Republic of the Philippines.
It also defines other conditions which allow the debt ceiling to be “temporarily breached when there are extraneous factors beyond its control including occurrence of catastrophic emergencies of national proportion, as may be declared by the President, and upon consultation with both Houses of Congress.”
In such an event, the President will have to seek authority from Congress to raise the debt cap, “from the representatives of the very taxpayers who shall amortize the debts.”
The bill requires the Secretary of Finance, within ten days from the end of every quarter, to submit to Congress a written report on the country’s fiscal position and the modes of financing the government has undertaken during the period.
“The debt cap will force government to exercise prudence in spending and to strengthen its fiscal management. Setting limits to borrowings will lead to better prioritization of programs and projects as it has to spend within available resources,” Recto said in the bill’s explanatory note.
The bill also compels “economic managers to be more accurate and prudent in their targets on the revenue and expenditure program. Likewise, it allows Congress to assert its power of the purse.”