Debt Down

National debt seen going down to 50% of GDP
Michelle V. Remo
Inquirer News Service

THE DEPARTMENT OF FINANCE said the national government's debt would likely go down substantially to only 50.5 percent of the country's gross domestic product by 2010.

This projection was made following the Supreme Court's decision upholding the constitutionality of the Value Added Tax Reform Law and on the assumption that the law would be implemented soon.

As of end-2004, the national government's outstanding debt reached P3.81 trillion, or 80.4 percent of GDP.

The debt level started rising drastically in the late 1990s because of weak government revenue collection, which forced it to incur huge borrowings to finance requirements.

Finance Secretary Margarito Teves said that expected lifting of the VAT law suspension would help the government wipe out its budget deficit by 2008, or earlier than the original target of 2010.

He said that with a zero deficit by 2008 and a budget surplus starting 2009, the government would be able to begin reducing its debt to only 50.5 percent of GDP by 2010.

The government's budget deficit in 2004 stood at P187 billion, or 3.9 percent of GDP.

Without the VAT law, the DOF estimated that the debt figure would decline at a much slower pace, only hitting 71.2 percent of GDP by 2010.

GDP is the total amount of goods and services produced domestically in a given period.

The VAT law will expand the coverage of the tax to include others products and services, including electricity and oil, and will increase the VAT rate from 10 to 12 percent starting 2006. The law will also increase corporate income tax rate from 32 to 35 percent.

Assuming the VAT law is implemented starting Oct. 1, the government could generate P9 billion in additional revenue this year and more than P80 billion yearly beginning 2006.