This document is a follow up on our Letter to the Economic Team.
We continue reading reports in the newspapers that raise concerns about our increasing national debt. This leads to dramatic statements, as if we were reaching judgement day; including the fallacy that each Filipino owes (but to whom? See below) over P130,000. Recent news articles continue to reinforce the notion that domestic borrowing crowds out private capital formation. They also frequently discuss the internationally-accepted thresholds for the fiscal deficit-to-GDP and debt-to-GDP ratios (about 3% and 60%, respectively) which do not have a solid theoretical basis to begin with.
Other concerns usually cited include the idea that debt servicing diverts government funds from more meaningful public programs, or that government “borrowing” from the private sector must be allocated efficiently to ensure that economic growth outpaces the increase in the debt stock. These views often lead to the misunderstanding that the tax base must then expand in order to absorb any economic shocks that could compromise the country’s economic performance.