Philippines’ Government Debt to China

and its Impact to the Economic

Growth of the Country

A Partial Fulfillment of the Requirements

in Economic Development

Proponents:

BSA191C

January 2020
 Chapter I

THE PROBLEM AND ITS BACKGROUND

This chapter presents the Introduction, Statement of the Problem, Hypothesis, Scope

and Limitation, Significance of the study, and Definition of terms.

Introduction

Economic development is one of the foremost objectives of every economy in the world

and economic growth is primary to economic development. Economic growth is the most

important fuel of a healthy economy (Agarwal, 2019). However, in order to achieve growth,

there is a need for finances to support government expenditures including here is the debt

which represents the accumulation of borrowings made by the government. Accordingly,

developing countries including the Philippines often issue debt in order to finance their

economic growth. There are international banks and monetary funds who supply the budget

for a certain plan made by the country.

Likewise, in a smaller frame. It is similar to how a business will take out a loan to

support the new project, or a family getting their dream house by a loan. In comparison to

this, the big difference is the size; sovereign debt loans will likely cover billions of dollars while

on the other side, personal or business loans can at time be fairly small. Government debt in

the Philippines has risen considerably and has been a sticking point over the past decades.

The Philippine economy has been relatively resilient to global economic shocks due to

less exposure to troubled international securities, lower dependence on exports, relatively

resilient domestic consumption, large remittances from about 10 million overseas Filipino

workers and migrants, and a rapidly expanding services industry. Meanwhile, China has

moved from a closed, centrally planned system to a more market-oriented one that plays a
major global role. Thus, it seems that China is capable to lend money to the Philippines for

having economic growth.

Hence, there are circumstances that make countries owe funds such as in times of

economic and financial crises. China has offered more or less US$26 billion in aid, loans and

investments to fuel President Rodrigo Duterte’s “Build, Build, Build Program” infrastructure

building spree. Those big-ticket promises were reiterated during Chinese President Xi Jinping’s

visit to Manila last November.

Out of 75 Infrastructure Flagship Project (IFPs) under Build, Build Build Program 35

projects have been approved by the NEDA Boards as of May 2018. Among these 35 IFPs, 25

projects will be funded through ODA, with 11 projects confirmed for funding by the following

fund sources: China (3 loans, 2 grants); Japan (4 loans); ang Korea (2 loans). Further 12

IFPs are under negotiations for possible financing by ADB and China. Meanwhile, two projects

with identified ODA sources are being reviewed. Out of 11 projects with confirm ODA funding

5 projects are funded by China, projects are namely New Centennial Water Source – Kaliwa

Dam Project, PNR South Long-Haul (Manila-Bicol), Estrella Pantaleon Bridge, Binondo-

Intramuros Bridge and Chico River Pump Irrigation Project.

Philippines is a developing country that accepts an Official Development Assistance

(ODA) from those already other developed countries and huge global organizations like World

Bank and Asian Development Bank (ADB). Since Philippines still lacks in financial and technical

support, ODA became a primary strategy to amplify huge projects like infrastructures and

social services. It is expected that it would contribute a lot to the country like pushing through

'Build, Build, Build' Project.

Therefore, this study was conducted to determine if the government debt from China

has impacts to economic growth. In the long run, Philippines still continues to patronize long-

term development partners. Thus, the country's economic connections remain firm.
Statement of the Problem

1. What are the impacts of government debt from china to its economic growth?

2. What is the underlying agreement of the Philippines government debt to China?

3. How does the Philippines allocate the funds that they owed from China for the growth

of the economy?

Hypothesis

The null hypothesis tested are:

1. The Philippines’ Government debt to China has significant impact to the economic

growth of the country?

2. The Philippines’ Government debt to China has no significant impact to the economic

growth of the country?

Scope and Limitation

This study was conducted to determine the Philippines’ Government debt to China and

its impact to the economic growth of the country. Government funds are used for the purpose

of having the economy grow. Whenever there is insufficient fund on the government’s findings

it is appropriate to accept Official Development Assistant (ODA) so that the development of

the economy will not lag. However, having high and growing external debt will create an

impact to the economic growth of the country.

The study involved only the Philippine debt to China and thus knowing the Philippines

and China’s underlying agreement regarding the borrowing funds will help the study in aiming
pertinent result. Additionally, knowing where the Philippines allocated the owed funds to the

government expenditure will determine the government debt impact on economic growth.

The study will not include the internal relationship between Philippines and China since

it is not significant to the study.

Significance of the Study

This will be beneficial and effective especially to the following people:

To the Society, as the Philippines owes funds to other countries, the society shall be well-

equipped and well-informed regarding to the consequences it may cause. This study will help

them know how the government allocates the funds being owed to China and how it affects

the country’s economic growth.

To Philippine Government, government agencies especially the executive body is tasked

in crafting economic policies to generate funds for the government expenditures. This

research will help them formulate alternative solutions other than borrowing funds or financial

support from other countries.

To the Students (especially Economics students), This study will be enlightened students

about important issues and its implication to the growth of the economy.

To the Researcher, this study will be a help in completing the researchers course

requirement. It would lead them discover new knowledge through the data and information

enclosed in the study. Where in it could also help the researchers widen their understanding

on the relevant economic issues.

Other Researcher, this paper shall be effective and helpful reference for the researcher who

would intend to make any further relevant study about the impact of government debt on

economic growth.
Definition of Terms

Apposite - derived from the Latin terms appositus and apponere. Ponere means to place,

and thus apponere is "well-placed or well-put."

Brokerage - the activity of buying and selling foreign money, shares in companies, etc. for

other people, or the money that is charged for doing this.

Deficit - the total amount by which money spent is more than money received.

Econometrics - quantitative application of statistical and mathematical models using data to

develop theories or test existing hypotheses in economics and to forecast future trends from

historical data.

Empirical - based on what is experienced or seen rather than on theory.

Exploit - from Middle English expleit, "outcome," from Latin explicitus, "unfolded, set forth."

The verb exploit means to use someone or something, usually selfishly or for profit.

Pertinent - relating directly to the subject being considered; relevant.

Stagnant - not growing or changing; without force or vitality.

 Chapter II

REVIEW OF RELATED LITERATURE

The government debt finances have a role when government spend its finances in the

creation of long-lived assets which benefit future generations of citizens.

The benefit principle of taxation suggest that the debt should be paid for out of taxes

extracted from the members of the generations who benefit from the assets. Still paying debt

is largely a political choice. Government debt as a share of GDP can be reduced or eliminated

in several ways (Taylor, B. n.d.)

1. The cost of the debt is imposed directly on taxpayers.

2. Run a deficit that is less than the growth in nominal GDP - imposes a lower cost on

taxpayers in the short run but raises the total cost of debt over time.

3. Relieves taxpayers of the interest and principal burden of the debt, but at a high

cost to fixed income investors

4. Outright Default - the entire cost is born by bondholders to the benefit of taxpayers,

but it becomes difficult to issue new bonds.

However, this is a risky source of finance. Government may lead it to exploit its debt raising

power more than it should, it happens when finances in current expenditure not resulting in

asset creation. Furthermore, debt finance has an impact on the behavior of private citizens

and possibly on their resource allocation decisions, that may add to the cost of debt finance

(Gupta, 2004). External debt is a type of debt that has a more limited justification it is seldom

long dated debt. External borrowing is from citizen of other countries.

 Therefore, this study was conducted to determine if the government debt from China

has impacts to economic growth. Once the debt is not paid, it is mandatory to make the

debtor country to sell natural resources or critical national assets like seaport or wide

property. In the long run, Philippines still continues to patronize long-term development

partners. Thus, the country's economic connections remain firm.

Overview of Countries that Receives ODA from China

SRI LANKA

The dept trap Saga in Sri Lanka began with lending enough funds needed to

have its strategic ports upgraded by Chinese construction entities. But, when Sri Lanka could

not pay back the loans, China turned ports to equity. As a result, China would have an

ownership to it and take control the two major ports of Sri Lanka. Thus, 2.60 % of GDP of Sri

Lanka is running deficit, half of 5.47% average for the period 1980-2017. So that, the country

is living beyond its means and relying on foreign money to sustain its living standards.

However, according to Mourdoukoutas, professor and chair of the Department of

Economics in New York, China cannot do to the Philippines what it did to Sri Lanka using dept

trap because unlike Sri Lanka, Philippines economy does not resemble yet. Filipinos live within

their means and country’s central bank has the foreign currency reserves to with the prospect

of a debt crisis.

ECUADOR

Ecuador borrowed billions of dollars in China but Correa Morena who is the President

of Ecuador and his government are straining under a huge budget deficit caused by obligations

to Chinese. Ecuador is benefited by China same with the other country such as Sri Lanka and

Maldives.
 According to Chris Kraul, the president of Ecuador is a close ally of Venezuela’s socialist

and saw Chinese loans as attractive because the Asian giant made no political or ideological

demands. For he wanted to fast track development projects, he borrowed billions of dollars.

Oil is the main source of Ecuador’s revenue but there is a global decline in the price of

oil. So, as it happened, Ecuador cannot be able to pay China even the other development

financed by the loans including hydroelectric plant are not producing the revenue that was

anticipated. As Ecuador cannot pay, its president made deals with China which is he will give

millions of barrels of oil in advance on favorable terms and mortgage the future production of

crude because it is one of their principal source of export dollars. As a result, Ecuador’s

economic growth slowed from 1.3% in the first half of the year to a projected 1% for the year

overall (down from 2.4% growth I 2017). The overall deficit was equivalent to 1.6% of GDP

(compared to 3.3% in 2017).

Review of Related Studies

A lot of studies have researched the impact of external debt on economic growth,

many end up finding negative impact on economic growth while others do not find significant

relationship between two variables.

In an article entitled “Is Public Debt Hindering Economic Growth of the Philippines?”

Akram (2015) sited Cunningham, economic growth is negatively affected by the debt burden

as it caused an impact to the productivity of capital and labor. Hameed also has the similar

conclusion that debt burden and create a negative impact to the productivity of labor and

capital and thereby adversely affect the economic growth. Hameed et al., explored the

dynamic effect of external debt servicing, capital stock and labor force on the economic growth

for Pakistan for a period of 1970-2003 and found out that an adverse effect of external debt

servicing on labor and capital productivity ultimately hampers economic growth. Fosu, also
concluded that debt burden has result to curtail in GDP Growth and further estimated that

developing country having high levels of debt is said to face 1% reduction on GDP growth

rate.

Woo and Kumar (2010), finding suggest that there is some evidence of nonlinearity

with high levels of initial debt having proportionately larger negative effect on subsequent

growth. However, analysis of the components of growth suggest that the adverse effect

largely reflects a slowdown in labor productivity growth due to the reduced in investment and

slower growth of capital.

Essay (2018) sited Malik Hayat, that have explored the relationship between external

debt and economic growth in Pakistan using time series econometrics technique for the period

1972-2009, the study shows that external debt is significantly and negatively related to

economic growth. Study also showed that in country’s external debt will lead to decline in

economic growth.

Shabbir (2013), explores the long run linkage between economic growth and external

debt indicators using debt overhang theory and the liquidity constraint hypothesis. Findings

of this paper are consistent with the theory and find a strong negative impact of external debt

and external debt servicing on per capita GNI growth. In addition, they find out strong

evidence that fixed capital formation contributes to economic well-being.

Based on Maureen Were, a PhD in economics in United Nations University, countries

like Kenya which continuously experience difficulties in managing and servicing external debt

rise. Debt burden that has serious implications on the country’s development and debt

sustainability initiatives. The economic performance continues to deteriorate and there is a

significant net outflow of resources to meet the debt obligations. It has negative impact on

economic growth and private investments that confirms the existence of a debt overhang

problem in Kenya.
 Accordingly, Carmen Reinhart and Kenneth Regoff, showed that high levels of public

debt have negatively impact with economic growth, however there is no link between debt

and growth when public debt is below 90% of GDP (Reinhart, Reinhart, and Regoff 2012;

Reinhart and Regoff 2010). They were careful in stating that their results did not prove the

existence of a causal relationship going from debt to growth. However, many commentators

and policymakers gave a causal interpretation to their findings and used the debt-growth link

as an argument in support of fiscal consolidation. Regoff were criticized by Herndonet al.,

they find that there were certain coding errors and selective exclusion of available data and

if these issues were corrected GDP growth at public debt/GDP ratios over 90 per cent is not

dramatically different than when debt/GDP ratios are lower.

The public debt and economic growth could be driven its link by the fact that it is low

economic growth that leads to high levels of debt. Alternately, he observed the relationship

between debt and growth which could be due to a third factor that has a joint effect on these

two variables. Based on Panizza and Presbitero (2012a), they test for causality and do not

find evidence in support of the hypothesis that debt causes economic growth. While they are

aware that techniques for assessing causality are never watertight, they are confident in

stating that, hereafter, there is no paper that can make a strong case for a causal correlation

from debt to growth.

Additionally, with regards to the impact of debt to GDP on economic growth, according

to the study of Pegkas (2018) entitled, “The Effect of Government Debt and Other

Determinants on Economic Growth: The Greek Experience” has experienced negative. This

negative effect of debt to GDP on growth means that domestic borrowing from foreign capital

was used to finance government expenditure and public investment, thus the borrowings

contribute to the increase in public spending, increases budget deficit and lead to higher public

debt in order to finance these deficits. The external borrowing of Greece was directed not for

used to prospect economic growth but rather use for consumption. Therefore, for this reason,
Greece have loss its competitiveness. The results also revealed that in Greece in year 2000

the turning point of debt to GDP beyond which economic grows slow down sharply is 105%

of GDP. Above the threshold of 105% of GDP levels of dept-to-GDP had significant negative

effect on growth explaining why government debt was a significant drag on the economic

growth of Greece. This study made use an equation wherein they include the growth control

variable, investment, private consumption, trade openness and population growth.

According to Were (2001) cited on Akram (2015) in the study on Kenya, study shows

that external debt has a negative impact on economic growth. Nevertheless, he figured out

that current debt flows stimulate investment still past debt accumulation discourages the

investment. Supporting Were study, Habina found that different debt variables have

significant and negative impact on investment in the study in Rwanda. On one hand cost of

debt servicing is reducing public investment and on the other hand, higher taxes have a

disincentive effect on investment returns, necessary to service debt obligations.

On the other hand, according to Iron and Biven (2010), shows a theory to the

underlying reason why government borrowing can be bad for economic growth primarily

concerns deficits, not debt. An increase in government budget deficit means that the

government increases its demand for “loanable” funds from private sector, looking to borrow

money from its own citizens as well as from international investors. For developed country

like United States, it implies that the government begins to compete with private borrows for

fixed supply of savings, and thus drives up interest rates. The increase according to Irons and

Bivens may reduce the private sector investments in plants and equipment due to crowding

out that cause decline in investment. This means that overall economy has a smaller capital

stock with which to work, and this smaller capital stock decrease future growth rates.

Additionally, Iron and Biven (2010) implies that the nation’s outstanding debt plays no role

in this account of borrowing and subsequent growth, it is the annual deficit not the outstanding

stock of debt that threaten future growth.

 According to Taylor (n.d.), he showed in his study entitle “Paying off Government Debt”

of 12 countries, that in addition to the level of debt/ GDP ratio the interest cost of covering

the debt are important variables affecting the economy. Moreover, the impact of government

debt/GDP ratio also depends upon the causes, whether increase is short-term due to war or

economy fluctuation, or secular due to unfunded increases in government expenditure. Taylor

implies that deterioration of public debt is a political decision that may lead to affect the citizen

of the country by, reducing government employees’ compensation, reducing recipients of

government funding, through higher taxes or an outright or inflation default.

On the other view, Alzahrani (2018), with the use of panel data, results indicate that

government debt contributes positively to the GDP growth, investment and HDI (Human

Development Index), it has an adverse effect on ASEAN countries economies. In their study

it also appears that an increase in public spending and improvement in the quality of

improving institutions impact debt on growth and investment improve HDI. Their empirical

evidence suggests that the impact of debt on various economic indicator depends on several

factors such as, threshold, allocation, governance and crowding in vs. crowding out effects.

From the review of related literature done so far, it can be broadly summarized that

most of the studies come up with the conclusion that higher level of external debt is associated

with a relatively lower level of economic growth. Some studies have identified the impact of

public debt to the economic growth with the growth control variable to suggest sound findings.

Furthermore, government impact of government on economic indicator depends of several

factors. Only few studies have identified nonlinear relationship of the two variables.

Nevertheless, the prime objective of the review of studies was to explore the impact of the

government debt to the economic growth of the country. Therefore, the present study is an

attempt to fill these gaps in the existing literature

 Chapter III

RESEARCH METHODOLOGY

This chapter discussed the designs and procedures undertaken during the conduct of

the study. It presented the research method used, instrument used, data gathering

procedures and statistical treatment of data.

Research Method Used

Descriptive research is a method used in the process of finding adequate and precise

interpretation of the facts presented. The researchers employed this research method to

emphasize the problem revolving around the situation rather than simply identifying them.

According to Creswell, he stated that the descriptive method of research is the gathering of

information about the present existing condition. The aim of descriptive research is to verify

formulated hypotheses that refer to the present situation in order to simplify it. Moreover,

this method uses flexible approach, thus, when important new issues and questions arise

during the duration of the study, further investigation can be conducted. This method is best

suit in this study since it tackled about the impacts of government debt of the Philippines to

China towards the economic growth of the country.

Instrument Used

The study used descriptive method in conducting the study to achieve its main

objective. This method may help to uncover new facts and meaning. The researchers also

used library method in researching an apposite information that may support or reject the

presented hypothesis.
Data Gathering Procedure

The researchers endeavored to look for the sufficient data from different credible

websites both government and non-government organizations such inquirer.net,

sciencedirect.com, academia.edu, worldbank.org and latimes.com.

Statistical Treatment of Data

The gathered data from different sources where used to provide relevant information

that will lead into deeper understanding of the subject of the study. As the collection of data

partakes the researchers will decide which hypotheses is true. The preferred way to do this is

inferential statistics.

Inferential statistics allows the researchers to make predictions from the gathered

data. There are two main areas of the statistics which is Estimating Parameter means taking

statistics from the data and the other is Hypotheses Tests wherein you can use sample data

to answer research questions. The researchers utilized this type of statistical treatment for its

best suits the current undertaking.

 Chapter IV

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

This chapter presents the findings obtained from primary instrument used in the study.

It shall discuss the results obtain from the data processed by different economist, analyst and

data given by government agencies to come up with precise conclusion regarding the

problem. The researcher provides graphs and data for better understanding of the discussion.

Philippine was included in developing economy that accept funds from developed

country and huge organization like World Bank and Asian Development Bank (ADB) through

ODA. There are two type of Official Development Assistance (ODA) according to Feliciano

(2019) the grant and the loan. Having lack of financial and technical assistance, Philippines

made ODA as primary strategy for funding government infrastructure and social service for

the growth of the country.

Figure 1 indicates that total loans and grants from China has a total number of three

(3) for over 366 loans and grants that the government have listed. Country that has a huge

amount of loans to Philippines was Japan with a total number of 22 while USA funded 53

grants for the country. Maria Edita Tan, assistant secretary of DOF, stated that China is not

the largest funder of Philippines’ infrastructure modernization projects, which is evidence on

the figure 1.
 Figure 1: Indicative Total ODA (Loans and Grants)

Ranking by Fund Source As of June 2018

According to Philippine Finance Secretary Carlos Domenguez, Philippine debt to China

stands at approximately one percent of the country’s total debt. Chinese loans to Philippines

at the end of 2022 will only account for a very small portion of the whole debt of the

government. Moreover, the infrastructure funded by China will benefit the Philippines and its

people. The government ensure that the borrowed money is invested in projects whose

economic return is higher than the cost of the debt. However if the sole purpose of country’s

borrowing from China is for government expenditure and public investment it will contribute

to the increase in public spending, increase budget deficit and lead to higher public debt in

order to finance these deficit therefore there is a possibility of negative impact of government

debt to the present growth of the country.

Infrastructure of Philippines Funded by China

China have funded 5 projects to support IFP’s project under Build, Build, Build Project

of Duterte administration namely New Centennial Water Source – Kaliwa Dam Project, PNR
South Long-Haul (Manila-Bicol), Estrella Pantaleon Bridge, Binondo-Intramuros Bridge and

Chico River Pump Irrigation Project. The PNR South Long-Haul (Manila-Bicol) cost US$ 219.78

million this project has the similar agreement with the Kaliwa and CRPIP and the said project

(shown in figure 2&3) will link Metro Manila to Legazpi, Albay; Legaspi to Matnog in Sorsogon;

and Calamba, Laguna to Batangas City. Meanwhile, the two bridges project are grants by

Chinese government, costing US$ 75-million and my subject to change.

On November 15, 2017, the Republic of the Philippines represented by the Department

of Finance (DOF), and the Export-Import Bank of China signed the Financing Cooperation

Agreement on the Chico River Pump Irrigation (CRPIP) and New Centennial Water Source-

Kaliwa Dam Project on the summary of the progress and arrangements in implementing the

two projects to be financed by the Preferential Buyer’s Credit facility. Pursuant to the

agreement of the two party, China CAMC Engineering Co., LTD., Chinese contractor, has been

selected as the contractor for the project. On March 9, 2018, Philippines has requested Export-

Import Bank of China to make available of the loan amounting up to US$ dollar sixty-two

million eighty-six thousand eight hundred and eighty-two cents (US$ 62,086,837.82) for the

financing of the commercial contract CRPIP and on September 21 on the same year Philippines

has requested to issue two hundred eleven million two hundred fourteen thousand six hundred

forty six and fifty for cents US$ 211,214,646.54. Below is the loan agreement of the project

provided by DOF Agencies (2019).

Chico River Pump Irrigation River Project

Loan Agreement
Amount US$ 62,086,837.82
Interest Rate 2% per annum
Maturity Period 20 yrs. With the grace period of 7 yrs. and 13 yrs.
repayment period
Purpose Entire proceed of the facility shall be for the sole
purpose of the payment of 85% of the Commercial
Contract Amount
Management Fee 0.3%
Aggregate amount: US$ 186,260.51
 Payable within 30 days after the agreement becomes
effective
Commitment Fee 0.3% per annum
Payable during Availability Period (semi-annually) on
each Interest Payment Date

Figure 2: Conditions and Utilization of the Facility

(Chico River Pump Irrigation River Project)

New Centennial Water Source-Kaliwa Dam Project

Loan Agreement
Amount US$ 211,214,646.54
Interest Rate 2% per annum
Maturity Period 240 months with the grace period of 84 months and
156 months repayment period
Purpose Entire proceed of the facility shall be for the sole
purpose of the payment of 85% of the Commercial
Contract Amount
Management Fee 0.3%
Aggregate amount: US$ 633,643.94
Payable within 30 days after the agreement becomes
effective
Commitment Fee 0.3% per annum
Payable during Availability Period (semi-annually) on
each Interest Payment Date

Figure 3: Conditions and Utilization of the Facility

(New Centennial Water Source-Kaliwa Dam Project)

Figure 2 and 3 shows the underlying condition of the issued loan by China to the

Philippines to finance the two projects of the present administration. The loan is allocated

mainly to the infrastructure of Chico Pump Irrigation Project for which it will irrigates 7530

hectares in Tuao and Piat, Cagayan and 1170 has in Pinukpok, Kalinga and expected to be

operational either last quarter of 2020 or early part of 2021. The other project for which the

loan is allocated was for the infrastructure of New Centennial Water Source-Kaliwa Dam

Project to put an end to water shortage in Metro Manila and augment the water supply in

Angat Dam, for it will provide 600 million liters of raw water per day. The two projects funded

by China has a similar agreement as shown in the table above. Both funds cover 2% interest

rate per annum, 20 years maturity data with 7 years grace period and 13 years of repayment
date. Moreover, the loan also covers 85% of the project's contract amount and cannot be

used to pay for the brokerage fees, agency fees or commission. Management fee, which is

due after 30 days of the effectiveness of the agreement, was 0.3% of the total agreed funds

of the two project and commitment fee which is payable semi-annually on the same date of

the interest day payment was also 0.3%. According to Secretary Antonio Lambino, there are

no assets involved as collateral in case the country fails to pay the loan, instead creditor

country has recourse if the borrower does not pay.

According to Ucan (2014) quoted by Alzahrani (2018), developed or developing

countries aimed to create sustainable growth rates through accumulation of capital.

Noteworthy, investments are one of the determinants of GDP in any country, the level of

economic development notwithstanding. Among the study, interest rates are amongst the

many factor that determine the level of investment in the countries. However, according to

Kim, Kose, and Plummer (2003) on Alzahari (2018) study, the higher the interest rate in most

Asian countries including Philippines causes a decline in investment and economic growth.

Moreover, Philippine using ODA as a main strategy for growth of the country will

increase foreign debt. Increase in external debt will blurred foreign investors’ vision for which

it creates negative view of future economic expectation, which significantly reduce the level

of investment in the country (Alzahari, 2018). However, Philippines sole purpose of external

debt for rehabilitation and strengthen of economic structure and infrastructure will attract

foreign investors to invest direct in the country. On this note, Daude and Stein (2007) as cited

by Alzahari (2018) state that developing countries need to pay close attention to the quality

of their institution to attract more foreign direct investment.

 The graph, figure 4, presented denotes how the debt of the Philippines moved

downwards and impact the Gross Domestic Product of the country. In accordance to the data

given by Bureau of the Treasury with regards to the Philippine Government debt to Gross

Domestic Product (GDP), recently in 2018, it was recorded that the debt of the government

in the Philippines is equivalent to 41.90% of the country's GDP. Last 2010, the debt ratio of

the GDP of the Philippines reached 52.4%. However, after two years that had passed in year

2012, the ratio decreased to 51.5%. On 2014, it gradually declined to 45.4%. Last 2016, it

continued to step down with a ratio of 42.1%. Lastly, the graph shows that in 2018, the debt

ratio to GDP of the country decreased until it reached 41.9%. From 1990 until 2018, the

average debt-ratio became 55.76%.

Figure 4: Government Debt to GDP

Having a strong macroeconomics management, Philippines where in a position to

increase its borrowing to finance different infrastructure investment for human development.

To put it bluntly, one of the indicators for the investors to know if the country will be able to

pay off debt is through debt-to-GDP ratio. Wherein, the development budget coordination

committee stated that the government will remain at prudent level. Also, to finance

infrastructure investments the government were still holding unto the idea of loans.
 According to Kenton (2019), the higher the debt-to-GDP ratio, the lower chance for

the country to pay back its debt and higher its risk of default. On the other hand, Kuepper

(2019), states that higher debt-to-GDP ratio wasn’t necessarily bad, it is acceptable when an

economy is rapidly growing for it can be a way to leverage debt to enhance long-term growth.

Kuepper (2019), state that reduce in government spending and encouraging growth through

production or increase tax revenues, will help in dealing with continuous growth in debt-to-

GDP ratio. Government strives to lower their debt-to-GDP ratios, however during period of

unrest such as wartime, or economic recession this can be difficult to achieve. In such

situation’s government opt to increase its borrowing to stimulate growth and boost aggregate

demand (Kenton, 2019). During Duterte's administration, it depicts the over-spending and

over-borrowings of the Philippine Government. It was shown that the country's Debt/GDP

ratio has currently been declining stagnant from 54.8% in 2009 (Arroyo administration) to

42.1% in 2016 (H1 Aquino, H2 Duterte), then it slayed there at 42% in 2017 and 2018.
 CHAPTER 5

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

Summary

The study determines the Philippine’s government debt to China and its impact to the

economic growth of the country. The study used descriptive research method to emphasize

the problem revolving around the situation and verify the formulated hypothesis of the study.

The research instrument used by the research is library method wherein they research

apposite information to achieve the main objective of the study and support or reject the

hypothesis formulated by the researcher. The researcher endeavored to look for the enough

data from different credible websites both government and non-government organization that

are published by authorized authors. The researcher treated the statistical data with

inferential statistics which allows the researcher to make predictions from the gathered data

and test which hypothesis is true regarding the study.

Conclusion

The very purpose of this study is to determine the impacts of debt of the Philippine

government to China and how it could affect its economic growth. The results accumulated

rejects the null hypothesis of the study that the Philippines’ Government debt to China has

no significant impact to the economic growth of the country. The results accumulated showed

that the effects of borrowing money from China for implementing programs or building

infrastructures could affect the movement of the country’s gross domestic product. With the

use of other local and foreign studies, the researcher concludes that:
  Government debt from China has significant role in the country’s growth for it

will be used for rehabilitation and improvement of its infrastructure, it is

believed to create benefit for future generation of citizen and improve quality

of living;

 Government debt from China will increase government spending, thus

negatively impact the future growth of the country; and

 Government debt either from China will hamper present possible investment.

Additionally, GDP related negatively, decrease in investment will lead to reduce

country’s productivity and labor and later affect the consumption. Investment

and consumption are an indicator for the movement of GDP, decrease in two

indicators will slowdown economic growth.

Recommendation

In accordance to the finding of this study, it would be better for the country to

remain its consistency in gradual payment of the borrowed money from the China. The GDP

could be increased and continuously moved upward if and only if, the country’s purpose of

borrowing in the first place would be having a positive outcome that leads the country to pay

its debt as compromised with China, such as programs that could be beneficial to the increase

of the GDP. It would be better if the country would consider and manage its expenses properly

and allocate public debt for the purpose of lifting growth to the economy of the county so that

it will boost not only the GDP of the country but also the investment and improvement of HDI

of the country. Significantly, it would be beneficial if the government will ensure that the loans

will be used in the proposed projects only. It would be an advantage if the Philippines would

calculate possible risk before borrowing money to the lenders, so that the country will not

sink to debt or be at risky situation. Moreover, it is recommended for the government to

reduce its spending in order to reduces the country’s budget deficit and create no increase
for further borrowings of the country in the future. China and Philippines may follow what

they have agreed in terms of borrowing money as well as paying it back to China. Lending an

amount of money from China is such a serious matter especially if it is that huge. However,

it depends upon the Philippines on how it manages well the borrowed fund to gradually and

eventually pay it back to China.

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