Lubog sa utang

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There is no better way of delivering this worrisome message than this tagalog description of our situation: lubog sa utang or drowning in debt.

Our national debt has hovered around 62 percent of GDP in recent years. Our economic managers are quick to point out that this is only slightly above the commonly referenced 60 percent threshold for “comfortable” debt levels in developing economies.

A couple of months ago, I had lunch with former Senate president Frank Drilon at his residence. Sen. Frank invited former budget secretary Butch Abad to join us.

From ghost DPWH projects, our conversation turned to our national debt level. I recall Sec. Butch saying that he isn’t as worried about our debt-to-GDP ratio as he is about our national debt growing faster than our economy.

In 2022, our national debt grew by 14.4 percent from 2021 while GDP grew by 7.6 percent. In 2023, national debt grew by 8.9 percent while GDP grew by 5.5 percent. In 2024, national debt grew by 9.8 percent while GDP grew by 5.6 percent.

Debt growth in 2025 (10-12 percent nominal) appears to be larger than GDP growth (projected four to five percent), meaning debt is definitely rising faster than the economy.

In simpler terms, think of the economy as a household whose members earn less than what they borrow.

Sec. Butch expressed concern over what it will cost to service our debt and our government’s ability to raise the money to pay principal and interest from taxes and other revenues.

It is a zero-sum exercise, I recall Sec. Butch explaining. Right at the start of the budgeting process, half of the funds that BIR and Customs are likely to collect must be earmarked for debt service.

That means less funds to build classrooms and hospitals, provide decent education for our children, modernize the armed forces and put up long needed infrastructure. So, we must borrow or tax more to fill the needs gap.

And now we must factor plunder. The trillion pesos that were plundered by some of our officials working with rogue contractors will be paid by borrowing or taxing the people more. All that plundered money is lost and will not contribute to our economy’s ability to perform better.

Looks like we should brace for another round of increased taxes.

A basic financial lesson my father taught me is to never borrow beyond what I can afford to pay. It is a bit more complicated for a country in urgent need of development.

For a household as it is for a country, there is nothing wrong with borrowing. What matters is how the funds are used, managed and repaid.

For a country, using the proceeds of its national debt productively and sustainably requires strong planning, transparency and clear links between borrowing and long-term development goals.

In our case today, our Treasury is borrowing just to cover short term fiscal deficits created by reckless expenditures mostly due to corruption.

Our government should be investing in roads, ports, energy, water systems and digital infrastructure to support economic growth. These assets will help expand economic activity, boost productivity and improve long-term revenue flows if well-planned and executed.

Another way of properly using borrowings is to improve human capital. Government should use debt to enhance education, health care and social protection; healthier, better-educated populations are more productive and attract investment. Just ask the Vietnamese.

Investing in people helps break cycles of poverty. The Conditional Cash Transfer program or 4Ps is a good example. Though it is mostly funded by the national budget, the World Bank has contributed a total of about $1.26 billion in financing for the 4Ps program since it first started providing support in 2010.

Over-dependence on high-cost borrowing can squeeze budgets and force cuts in essential spending. Choosing concessional loans can ease pressure.

But our economic elite, with so much excess capital in their hands, drive the government’s Treasury Bill auctions. Even the banks would rather lend to the Treasury than lend to entrepreneurs who drive the economy. Passive income galore, well in line with the elite’s rent-seeking ways.

T-bills are essentially short-term and stop-gap in nature or debt used for consumption (e.g., covering routine operating expenses) and yields little long-term benefit. And because it is so easy to raise due to excess liquidity from too much wealth concentrated on the elite, the risk of unsustainable debt is there.

Conversely, borrowing for investments that generate economic returns will enhance a country’s capacity to repay while improving living standards.

Unfortunately, our future generations will have to pay for the sins of our current officials. That’s on top of making them inherit a decrepit economy that has been overtaken by our regional neighbors.

In absolute terms, government debt is almost certain to continue rising in the near term because fiscal deficits will almost always be there.

Slow economic growth means less revenue out of the economy’s base.  Our economic growth needs to recover above the current five to six percent, otherwise the debt-to-GDP ratio can stagnate or rise even with prudent borrowing.

Fiscal consolidation (better tax collection, spending efficiency, less corruption) would help slow debt growth. Unfortunately, the corruption scandal has made things more difficult because public confidence and institutional credibility are now part of the challenge.

Governance reforms are now more important than ever. If government spending becomes more efficient and corruption is addressed, future investment could rebound, supporting growth and improving debt sustainability.

Conversely, if BBM’s weak governance continues, that would keep investor confidence weak and growth lower.

The flood control scandal has created headwinds that make debt sustainability more challenging because it weakens the economy’s growth engine just when the government must consolidate finances.

We seem to be drowning in debt only because we have mismanaged it so badly over the years. At the rate we are going and also because our economic technocrats have no balls, it promises to only get worse.

Boo Chanco’s email address is Follow him on X @boochanco