EDISON A.

VILLAMER BSEE-3A

FACULTY MARKED ASSIGNMENT/ACTIVITY #03

Knowing the principles that we have discussed on the introduction to Engineering
Economics, kindly research on the following:
1. GDP’s (Gross Domestic Product) and growth rate of the Philippines for the
past 10 years.

Table 1. GDP’s (Gross Domestic Product) and growth rate of the Philippines for the past 10 years.

GDP
YEAR GDP Growth Rate
(in US Billion Dollars)
2010 208.37 7.63%
2011 234.22 3.66%
2012 261.92 6.68%
2013 283.9 7.06%
2014 297.48 6.15%
2015 306.45 6.07%
2016 318.63 6.88%
2017 328.48 6.68%
2018 346.84 6.24%
2019 376.8 5.91%
2020 Forecast - -7.3%
Sources: Asian Development Bank (September, 2020), World Bank and Statistica.com

2. As to date, what is the figure of the Philippines Total Gross External Debt?

Table 2. Philippines Outstanding Debts as of 2020.

2020 PH Outstanding Debts
(in million pesos)
JUNE JULY
DOMESTIC 6,190,040 6,256,489
EXTERNAL 2,864,024 2,907,660
TOTAL OUTSTANDING
9,054,064 9,164,149
DEBTS
(Bureau of Treasury) Press Release on September 2, 2020: National Government Debt Recorded
at P9,164 Billion as of end-July 2020
 3. National Budget of the Philippines for the past 10 years and the percentage
of its allocation on each sectors (General Public Services, Economic
Affairs, Public Order and Safety, Defense, Environmental Protection,
Education, Social Protection, Health, Housing and Community Amenities,
Recreation, Culture and Religion.
Table 3. Past 10-Year National Budget

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Approved National
1.645T 1.816T 2.006T 2.265T 2.606T 3.002T 3.35T 3.767T 3.662T 4.1T
Budget as per GAA

SECTORS

not
General Public
specifically 17.7% 17.3% 16.1% 16.5% 41.7% 38.16% 36.6% 19.41% 18.21%
Services mentioned

Economic Affairs 24.2% 24.3% 25.5% 26% 19.2% 16.6% 16.45% 18.4% 26.50% 29.27%

not
Public Order and
6.36% specifically 4.01% 5.43% 5.54% 4.6% 5.2% 5.2% 5.09% 1.12%
Safety mentioned

Defense 8.1% 4.8% 4.5% 4.1% 29.4% 3.4% 3.52% 3.4% 5.15% 4.81%

Environmental
2.2% 2.95% 1.15% 1.06% 0.83% 0.2% 0.23% 0.6% 0.63% 0.64%
Protection

Education 12.6% 14.4% 11.6% 14.87% 17.38% 16.3% 19.35% 18.7% 18.16% 16.89%

Social Protection 2.09% 31.6% 2.81% 3.49% 4.15% 12.3% 11.99% 12.2% 4.86% 4.89%

Health 2.02% 2.3% 2.55% 3.85% 3.99% 4.2% 4.59% 4.6% 4.61% 4.29%

Housing and not not not not not not

Community specifically specifically specifically specifically 0.4% 0.5% 0.35% 0.2% specifically specifically
Amenities mentioned mentioned mentioned mentioned mentioned mentioned

not not not not not not not

Recreation, Culture
specifically specifically specifically specifically specifically 0.2% 0.17% 0.2% specifically specifically
and Religion mentioned mentioned mentioned mentioned mentioned mentioned
mentioned

Based on the above, (1) make an evaluation and assessment, and (2) reflective
report and suggestion on how and when do you think that the Philippines will
able to pay all the external debt.
 (1) Make an evaluation and assessment on how and when do you think that
the Philippines will able to pay all the external debt.
Table 4. 5-Year data on previous and forecasted National Budgets.

DEBT BURDEN TOTAL REVENUE

NATIONAL TOTAL % increase of
FISCAL (in pesos)
BUDGET ALLOCATION BORROWINGS total
YEAR (FY) (% allocation from National borrowings
(in pesos) Budget) (in pesos)
% increase of
Revenue
revenues to
Collections
previous FY

10.5% 1.07%
2017 3.350T 2.473T 8.78% 631.3B
(decrease)
2018 3.767T 9.9% 2.850T 13.23% 947 B 33.34%
2019 3.662T 11.31% 3.317T 9.16% 1.189T 20.35%

9.164T 87.03%
2020 4.100T 11.24% 3.492T 10.16% (as of end of July, 2020)

2021 12.194T 24.85%

(proposed)
4.506T 12.4% 3.849T 9.29% (forecast)

14.514T 15.98%
2022 (forecast)

8.8% 23.63%
Average (average budget 11.07% 10.12% (average increase in
increase per FY) total borrowings)

Table 5. 2050 Post-Pandemic Forecast on Budget allocation and Debts.

By 2050

NATIONAL DEBT BURDEN TOTAL TOTAL FUNDS TOTAL BORROWINGS BY

BUDGET ALLOCATION REVENUES (Debt Burden Allocation +
2050
(in pesos) (in pesos) (in pesos) Total Revenues)

63.14T 6.99T 80.14T 87.13T 80.25T

Table 4 shows the past 4 years national budget and its debt burden allocation,
together with the country’s proposed borrowings to finance its projects, under Duterte
Administration. While, Table 5 illustrates how do the budgets and debts look like in the
coming 30 years.
With the growing case of COVID-19 Pandemic, our economy has plummeted
severely. Hence, it affects our economy largely. Breaching to almost 10T pesos by the
end of July, the country’s outstanding debt are set to inflate more. However, if by one to
two years the pandemic has ended, the economy will surely heal. The post-pandemic
2050 forecast – considering the average percentage increase to National budget per year
and its Debt Burden Allocation, total revenues percentage generation and total
percentage increase in Total borrowings – foresee when will our government pay for all
the country’s outstanding debts.
 (2) reflective report and suggestion on how and when do you think that the
Philippines will able to pay all the external debt.
The incurred debt was utilized for good over the years. These borrowed funds have
been beneficial for whatever our nation needs in that specific time. Meaning to say, these debts
are just nothing but something that largely pulls our economy down. It is in fact, otherwise.
Without this debt our nation won’t be able to go on and it won’t fund projects that benefits us.
Our economy will not cope up with its loss. However, there are still gruesome actions that lead
this debt to nothing but crisis for a nation.
“There were many causes of this debt crisis. The crisis arose from excessive borrowing,
inefficient and ill-thought-out economic policies, and corruption within debtor governments.”
Which, in result rapidly ascends one’s debts. Nonetheless, the debtors has nothing to do but
pay for it, in whatever forms they are asked to. It’s difficult to handle billions of debts, that’s why
debts just inflates over the years. They are, in fact tantamount or worse to the drug problems,
pandemic, natural disasters and other economic crisis.
For this reason, I would want to reiterate these suggestions made by international
community and as studied by Agasha Mugasha (2007) on her published journal.

SOLUTIONS TO THE DEBT PROBLEM

Here are two of the solutions, I think would be practical to adopt at this moment in order to,
for our country, as the debtor to produce a full repayment to creditors, while asking for
concessions, such as extensions of due or more time to settle its debts. And other option to
settle the debt as soon as possible.

1. DEBT FORGIVENESS
First by asking the creditors to forgive our debts in full or at least in part. One basis for this
proposition is that less than half of the payments made by nations go towards retiring the
principal debt because most of the payments go to payment of interest. If so happened, one
must insist to reduce the interest burden to the principal loan. It is never a shame to ask for
help, maybe directly or indirectly to the creditor itself.
Various arguments have been made in favor of debt forgiveness. Why forgive the debt? Is it
even possible to alleviate one’s debt just in an instant?
Moral Arguments
In this argument, we foresee that forgiveness of debt is rooted on our relations between
humans – that there is a bond between and among us which distance us to material differences
and in whatever inequalities. If by helping one’s nation to recover from its indebtedness is of
their concerns to, this is one way to show them we are all humans bonded by God not by
materials we see from the world.

Economic Arguments
Every debtor wishes to free their nations from debts or at least diminish it. Developing
countries, such as the Philippines, if freed from debt will eventually grow economically and
surely will adopt a partnership with whom creditor-country will do business, trading and other
economic growth activities together.

Legal Arguments
Unsettled debts are gruesome challenges the world is facing. It mainly affects the
world’s spontaneous peace and order. Forgiving one’s indebtedness is one vital key to attain
global peace, order and prosperity. By ensuring a balanced growth of international trade among
debtors and creditors and by promoting each other’s employment and development programs
would be alternative agreements in exchange of the debts. In other words, partnership for
economic growth.

2. DEBT RESTRUCTURING AND DEBT RESCHEDULING

If forgiving the debt is not in the creditor’s vocabularies, seek for, at least extensions of due
dates. In this method, debtors ask for some breathing space, for some reasonable
considerations. The problem is that, the debt itself may even become bigger and bigger over
time.
“Debt Restructuring and Debt Rescheduling Debt restructuring (and rescheduling) is a
solution that has already been implemented for a great many developing countries. Generally, it
involves the renegotiation and modification of the contractual terms of the loan to enhance the
borrower's chances of full payment of the loan.” But, I think the modification of agreements must
not increase from the previous agreements. Insist to just prolong the dates, at the end of the day
they are still benefited of the interests mostly already twice or thrice the principal. That’s
because of the accumulated interests over time.
In effect, it may prevent the debtor country from going deeper and deeper economic chaos
or worse bankruptcy. Anyway, the interest on the debts continues to ascend at a rate just equal
to, not more than the bank's average cost of funds at the date of restructuring or in the
modification of agreements.
In the light of the solutions aforementioned, if not still acknowledged by the creditors, The
Secondary Market in Developing Country Debt solution, maybe considered to be of help in
repaying the country’s debt.

Source: Agasha Mugasha, Solutions for Developing-Country External Debt: Insolvency or

Forgiveness, 13 Law & Bus. Rev. Am. 859 (2007)

WHEN WILL WE SETTLE OUR EXTERNAL DEBTS?

By 2050, the Philippines may already settle our external debts. Considering that the fiscal
health of the Philippines has improved significantly over the past decade. As a quick result, the
fiscal position had almost returned to balance. Along with improved fiscal balance numbers and
relatively robust economic performance, the Philippines has earned credit rating upgrades and
expects to do more in the near future. In recognition of the country’s sustainable fiscal position,
debt spreads have narrowed to levels better than those of higher rated sovereign bond issuers.
 However with the growing cases of COVID-19, it severely affects the economy of the
Philippines. The fiscal health of the Philippines has plummeted significantly over the past months.
The Philippines' total debt load has grown to almost ₱10 trillion in July as authorities borrowed
aggressively to fund programs aimed at easing the effects of the coronavirus pandemic. Assuming
that the forecasted growth rate of the Philippines will continue to go down from -7%, 2050 might
not be possible to resolve our debts. The reasons lie on the continuous weak revenue
generation, higher public expenditures and higher external indebtedness.
Furthermore, if the pandemic ends earlier than 1 to 2 years, the fiscal health may
significantly heal and return to balance. If so happened, by 2050 the Philippines could pay
all external debts in full.