Press Release
July 19, 2016

With NG debt near P6 trillion, Recto files debt cap bill

With the country's outstanding debt hitting P5.9 trillion in 2015, Senator Ralph Recto has filed a bill capping government's indebtedness at 50 percent of the country's Gross Domestic Product (GDP).

Recto said a mandatory debt cap is needed as "uncontrolled public debt can balloon to a magnitude that can wreak havoc on the fiscal balance."

While admitting that "debt per se is not bad" and that "the country's debt numbers are in the realm of the tolerable," there is a need to "institutionally set a ceiling on these obligations."

Under Recto's bill, the authority to set the magnitude of the national debt will not be unilaterally exercised by the executive branch.

The measure mandates the President "to go back to Congress and seek authority to borrow more in the event that the national government fiscal deficit target submitted by the President is breached before the end of the fiscal year," Recto said in the bill's explanatory note.

"It is essential that Congress should be closely guided by a borrowing program developed by the President to restore fiscal discipline before the country falls into another debt trap," Recto said.

Debt cap, the senator stressed, will compel the government to exercise prudence in spending and strengthen its fiscal management.

"Setting limits to borrowings will provide opportunities for better prioritization of programs and projects as it has to spend within available resources," Recto said.

From years 2010-2015, the debt-to-GDP ratio of the Philippines stood at 52.4%, 51.0%, 51.5%, 49.2%, 45.4%, and 44.8% respectively.

"Though the debt-to-GDP ratio already went down to 44.8% in 2015, the proposed cap will simply secure the prevention of potential negative impacts of high public debt on economic activity, "Recto said.

Recto said the debt ceiling may be breached only when there are extraneous events beyond the control of the government subject to Presidential certification, and approval of Congress.

Recto noted that a favorite way by the executive to spend borrowed money without congressional authority is to seek foreign funding.

"Instead of seeking funds from Congress through the national budget, pet programs get implemented through foreign borrowings. These debts will soon migrate to the national budget as payables in the debt service allocation," he explained.

"Utang muna tapos ipapasa sa Congress ang bayarin. Parang fait accompli," Recto said.

"A state university will pass through the eye of the needle to get an additional P1 million through the normal national budget route. But in a P10 billion project, if funded by foreign loans, executive officials lang ang pipirma with taxpayers' representatives clueless and out of the loop," Recto said.

"Parang may isang anak ka na bibili ng pagkain sa grocery at hihingi muna ng pera sa 'yo. Dala ang shopping list at iisa-isahin mo. Yung isang anak mo naman, pinautang sa casa, kaya umuwi na may bagong sasakyan na hindi man lang nagsabi sa 'yo at pwersahang ikaw na ang mag-a-amortize," he said.

Recto said a "half-of-the-GDP" debt cap is "reasonable and responsible."

"It does not handcuff the executive branch nor is it a straitjacket. What we just want is that if our debt breaches the ceiling, then ask Congress for authority to set a higher cap," he said.

"Because at the end of the day, these obligations become expenditures when it is time to repay them using taxpayer's money," he said.

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