Normalizing

What business does the Philippine government have unilaterally resetting global standards for fiscal prudence? Last Monday, the Palace spokesperson announced that our Department of Finance (DOF) now considers a debt-to-GDP ratio of 70 percent to be the "international threshold for sustainable borrowing."

- ALEX MAGNO

This happens after the latest numbers show that our debt-to-GDP ratio rose to 62 percent: a rather disturbing signal.

There is no law prescribing the prudential debt-to-GDP ratio. International financial institutions set the 60 percent threshold simply as a rule-of-thumb for developing economies.

Since there is no law, the DOF commits no crime adjusting the acceptable debt threshold. But our government acts strangely doing so.

While there is no crime, the market has its way of penalizing reckless fiscal management. When lenders feel we have exceeded the bounds of prudence, they simply downgrade our risk ratings and charge us higher interest rates. It becomes more expensive to refinance the nation's debts. This is as painful as any penalty could be.

Over the past three years, our propensity to borrow grew palpably. Our debt load now hovers at about P17 trillion. This is nearly triple the size of government's budget.

We automatically allocate debt service. This is pragmatic policy. It frees the debt service from the vagaries of politics. But it also takes out the national debt from the arena of public debate, removing it from the top-of-mind concerns of our citizens.

By unilaterally announcing a new prudential threshold for the debt-to-GDP ratio, this administration is further desensitizing our citizens to the matter of unbridled borrowing. This is not the pointless announcement it might seem to be at first blush.