Duterte’s Management of the Rising National Debt: Causes, Policies, and Impact

Duterte’s Management of the Rising National Debt: Causes, Policies, and Impact

During Rodrigo Duterte’s presidency (2016–2022), the Philippines’ national debt increased significantly, driven by massive infrastructure spending, pandemic-related borrowing, and economic recovery measures. While his administration pursued aggressive borrowing to fund the Build, Build, Build (BBB) program and respond to the COVID-19 crisis, it also introduced tax reforms and policies aimed at improving debt sustainability.

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✅ 1. National Debt Growth Under Duterte’s Term

📈 A. Debt Figures During Duterte’s Presidency

• When Duterte assumed office in June 2016, the Philippines’ national debt stood at approximately:
  • ₱5.9 trillion (about 42.1% of GDP).
• By the end of his term in June 2022, the national debt had ballooned to:
  • ₱12.79 trillion (around 62.1% of GDP).
• This marked a 116% increase in debt over six years.

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📊 B. Reasons for the Rising National Debt

1. 💡 Build, Build, Build (BBB) Program Borrowing
   • Duterte’s administration launched the Build, Build, Build program, which focused on large-scale infrastructure projects such as:
     • Highways, bridges, and airports.
     • Railway systems.
     • Flood control and urban development.
   • To fund this program, the government borrowed heavily through:
     • Foreign loans from countries like China, Japan, and South Korea.
     • Bonds and domestic borrowings.
   • Infrastructure spending increased from 4.5% of GDP in 2016 to 5.4% in 2019.

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2. 💡 COVID-19 Pandemic Response
   • The COVID-19 pandemic forced Duterte’s administration to increase borrowing to finance:
     • Social Amelioration Program (SAP) – cash aid for low-income families.
     • Healthcare response – vaccines, hospitals, and testing.
     • Economic stimulus – financial aid to small businesses.
   • The government passed the Bayanihan to Heal as One Act and Bayanihan to Recover as One Act, allowing the government to secure:
     • Foreign loans from multilateral institutions:
       • World Bank (WB)
       • Asian Development Bank (ADB)
       • Asian Infrastructure Investment Bank (AIIB)
     • Domestic borrowings through government bonds.
   • The pandemic-induced borrowing significantly accelerated the growth of national debt.

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3. 💡 Tax Reform Policies (TRAIN and CREATE)
   • To manage the rising debt, Duterte introduced tax reforms to increase government revenues:
     • Tax Reform for Acceleration and Inclusion (TRAIN) Law:
       • Reduced personal income tax but increased excise taxes on fuel, sugary drinks, and automobiles.
       • Aimed to generate funds for infrastructure and social services.
     • Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law:
       • Reduced corporate income tax from 30% to 25% to attract investors.
       • Improved fiscal incentives to boost foreign direct investments (FDIs).
   • Despite higher revenues from these tax reforms, the funds were not enough to offset the pandemic’s impact, leading to further borrowing.

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4. 💡 Currency Depreciation and Inflation
   • During Duterte’s term, the Philippine peso weakened against the US dollar, increasing the cost of foreign debt repayments.
   • Inflation, driven by rising fuel prices and supply chain disruptions, increased the government’s spending requirements.
   • As a result, the government borrowed more to maintain its economic programs.

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✅ 2. Debt Management Policies and Strategies

💡 A. Fiscal Prudence and Debt Service

• Despite rising debt levels, Duterte’s administration focused on maintaining debt sustainability by:
  • Timely repayment of maturing loans.
  • Ensuring that debt remained within manageable levels (below 70% of GDP, considered the critical threshold).
  • Debt service (interest payments) was consistently managed through:
    • Efficient revenue collection (via tax reforms).
    • Issuance of domestic bonds to reduce reliance on foreign debt.

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💡 B. Tax Reform for Revenue Generation

• Duterte’s TRAIN and CREATE Laws aimed to increase government revenue by:
  • Broadening the tax base.
  • Reducing corporate taxes to encourage business expansion and investment.
  • These tax reforms helped the government generate more revenue to service debt obligations.

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💡 C. Foreign Loan Diversification

• To mitigate risks, Duterte’s administration diversified foreign borrowings, securing loans from:
  • China and Japan for infrastructure projects.
  • Multilateral institutions (ADB, WB) for COVID-19 recovery programs.
• This strategy reduced over-reliance on Western lenders and diversified the debt portfolio.

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💡 D. Increased Infrastructure Spending

• Despite rising debt, Duterte’s government continued investing in infrastructure, believing it would drive long-term economic growth.
• Infrastructure investments were seen as growth multipliers, boosting productivity, trade, and employment.
• The debt-funded infrastructure was intended to generate future revenues, helping the government manage its debt load.

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✅ 3. Impact of Duterte’s Debt Policies

✅ A. Improved Infrastructure but Higher Debt Burden

• The Build, Build, Build program resulted in better infrastructure, boosting logistics, tourism, and commerce.
• However, the government’s heavy borrowing led to a significant rise in public debt, which future administrations inherited.

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✅ B. Increased Fiscal Deficit

• Duterte’s pandemic-related borrowing widened the fiscal deficit:
  • From 3.5% of GDP in 2016 to 8.6% of GDP in 2021.
• This deficit made the Philippine economy more vulnerable to global economic shocks.

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✅ C. Credit Ratings and Investor Confidence

• Despite rising debt, the Philippines maintained its investment-grade credit rating, showing confidence in its debt management capacity.
• The tax reforms and economic growth policies boosted investor confidence.

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✅ D. Long-Term Economic Recovery and Debt Burden

• The debt-funded infrastructure projects are expected to drive long-term economic growth, making the debt sustainable over time.
• However, future administrations will face the challenge of repaying large debts while balancing spending on social services and infrastructure.

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✅ 4. Challenges and Criticism of Duterte’s Debt Policies

❌ A. Debt Sustainability Concerns

• Critics argued that Duterte’s aggressive borrowing placed the country at risk of a debt trap, especially with China-funded loans.
• Concerns over debt-servicing capacity emerged, especially if the country experienced low economic growth.

❌ B. Lack of Transparency in Chinese Loans

• Some loans from China were criticized for lack of transparency and concerns over sovereignty risks.
• Critics warned that defaulting on these loans could lead to asset seizures or diplomatic consequences.

❌ C. Pandemic Borrowing Inefficiencies

• Although the government borrowed heavily during the pandemic, there were issues of:
  • Slow aid distribution.
  • Corruption allegations in pandemic-related programs.
  • Inefficient spending of borrowed funds.

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✅ 5. Conclusion

Under Duterte’s administration, the Philippines’ national debt increased significantly due to:

• Massive infrastructure spending through the Build, Build, Build program.
• Pandemic-related borrowing to fund social aid and economic recovery programs.
• Tax reforms to generate revenue and support debt servicing.

While the infrastructure investments and tax reforms were intended to stimulate long-term economic growth, the rising debt burden will remain a challenge for future administrations.

Would you like a comparison of Duterte’s debt policies with the current administration or an analysis of debt sustainability in the Philippines? 😊