Budget deficit highlights dangers of debt service priority, debt dependence

by Kobakila News

MANILA (Sept 22) — The national government’s budget deficit of an alarming P210 billion for January to August 2009 underscores the dangers of government’s unprecedented spending for debt service and dependence on debt, according to research group IBON, an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.

The eight-month deficit is already equivalent to the full-year deficit in 2002 of P210.7 billion, and higher than any other full-year figure.

With a deficit this uncontrollable, the group says that breaking the cycle of debt service and debt dependence is urgent. But instead of plugging the drain for potential public funds to create a budget surplus, the administration’s practice is to spend on deficit, which has to be covered by borrowing. Outstanding NG debt increased in 2008 at the fastest rate of growth in five years and as of May 2009 stood at P4.229 trillion.

Paying for debts eats up bulk of government earnings and in 2009, debt service (interest and principal payments) is allocated 52% of total revenue—meaning for every peso earned by the government, 52 centavos went to debt service. With dismal revenue generation, the resulting budget deficit is resolved through more borrowing, completing the vicious cycle of debt dependence and debt service.

IBON estimates that the eventual 2009 deficit will be closer to P290 billion which will be the biggest nominal deficit that the country has ever faced. The deficit next year will also likely be much higher than just P233 billion.

Government has to address the most important sources of deficit pressures: graft and corruption that drains revenues, trade liberalization that erodes tariff income, foreign investment incentives, unproductive debt service, and military spending.

Repealing the law automatically appropriating payments for debt service in the budget is also urgent and will send a strong signal that the government is sincere in using the budget for developmental rather than creditor purposes.

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