Strong peso cuts debt payments

PHILIPPINE NEWS SERVICE — The share of debt service in the yearly national budget is declining as a result of the steady rise of the peso against the US dollar.

Next year, the share of interest payments in the national budget will drop to 24.1 percent from 28 percent this year if the trend holds.

Of the P1.227 trillion budget for 2008, the government will shell out P295.8 billion for interest payments, from P318.1 billion this year.

Budget Secretary Rolando Andaya Jr. said that with less spending for debt payments, more funds are being made available for social and economic services and other productive components of the budget.

“The proposed interest payments allocation of P295.8 billion for 2008 marks the third straight year that loan repayments—nominally and percentage-wise—will be reduced,” Andaya said.

The reduced amount for interest payments is anchored on an exchange rate of P46 to P48 to a US$1, which Andaya says, is “a band that is admittedly on the conservative because traditionally we are prudent in making assumptions.”

He said the actual payout may end up lower if the strength of the peso, which currently trades at P46 to a dollar, will be sustained.

According to the budget chief, the debt service slice of the budget peaked at 31.6 percent in 2006 but has since been reversed beginning in 2006 when it plummeted to 29.7 percent of the budget of that fiscal year.

Better-than- expected fiscal numbers slashed the interest payments from the programmed P340 billion to P310 billion in 2006, Andaya said.

“The trend is expected to be sustained this year as only P303.2 billion out of the P318 billion originally appropriated for interest payments is forecast to be used,” Andaya said.

This optimism is born by the disbursements from the national government for the first half of 2007 when interest payments registered P129.6 billion as against the P149.9 billion programmed for the period.

“We have saved P20 billion in the first half of the year,” Andaya said.

He said the amounts freed from debt service are being re-aligned to activities that promote general progress and public welfare.

Andaya said this is evidenced in the proposed hike in social services spending from P325.5 billion this year to P385.8 billion next year. The share of the economic services sector will likewise increase by P32.5 billion to P280.2 billion next year.

“We are increasing the infrastructure and capital outlays budget by P18 billion, to P138.4 billion in education, culture and manpower, we have been pouring in P18.9 billion more so that its 2008 allocation will increase to P187.7 billion,” he said.

“The dip in debt service is dramatic. Instead of remitting money to our creditors, we will be remitting that to our people in terms of infrastructure, health services and education. The do challenge now is how to make re-channeled funds felt by all.”