Delmo, Arlance S

H11C
I. Philippine Debt – Public Debt
- Philippine Debt – More taxes
- More Debt means more taxes
- Personal Income Vs. Tax Rate
- More Public Finance or Rational Budget
- National Budget – Pay Debts
- External Debts
- IMF and WB, G7 Countries (USA, EU, Switzerland)
WHY DO GOVERNMENTS BORROW
1. Recession – Automatic stabilizers lead to lower tax
2. Finance public sector investment
3. Less politically damaging than raising taxes
4. Cost of wars/natural disasters
5. Higher Government spending (e.g., aging population)
THEORY OF PUBLIC DEBT
What is Public Debt
- Money or credit owed by any level of government indirect debt of taxpayers
1. Internal Debt
2. External Debt
INTERNAL DEBT
- Is the part of the total debt in a country that is owed to lenders within the country. A country
occasionally needs to borrow from institutional and individual investors for budgetary purposes.
EXTERNAL DEBT
- is the part of total debt in a country that is owed to lenders OUTSIDE the country. A country
occasionally needs to borrow from institutional and individual lenders (investors) for budgetary
purposes.

1990’s: Private Overborrowing and Reversal

Short-term loans
Financial Rescue Emerging
w/conditionality Economies

IMF Private Public International comm.

World Bank Investment Rescue
Flows Bilateral
banks

Loans &
Contributions Developed
Countries

Note: Thicker Lines are Before Crisis; Thinner Lines are After Crisis
STRUCTURE OF THE PHILIPPINE PUBLIC DEBT
Cross
Section
Creditor Debtor Maturity
Creditor Debtor Maturity
Central
Public Private
Official Private Public Short-term Bank

Central Medium- Short- Medium- Long-

Multilateral Banks
Bank Term Term Term Term
Supplier
Bilateral Private Long-Term
Credit

Financial
Institutions

Others

PERCENTAGE (%) CHANGE IN DEBT

1. D1 145M – 130M
2. Convert to Percentage
3. Plot the Values
II. Economic Policies
Government
Policy

Monetary Fiscal

Interest
Tax
Rates

Money
Spend
Supply
Fiscal Policy Monetary Policy
Higher Taxes Selling Treasury Securities
Lower Taxes Buying Treasury Securities
Higher Government Spending Increasing the Reserve Ratio
Lower Government Spending Increasing the Discount rate
FISCAL AND MONETARY POLICY
Fiscal - The utilization of certain governmental activities and actions in the
development and stabilization of the economy.
Monetary - This pertains to the amount of money circulation or the money supply in our
country
ECONOMIC POLICIES
Monetary Policy - Affects the savings and investment
Fiscal Policy - Controls taxes and government expenditures
Trade Policy - Affects a country’s exports and imports
Fiscal Policy:
- Government decides to raise taxes
- Government decides to lower taxes
- Government chooses high government spending
- Government chooses low government spending
It could be a combination of these policies
Example:
- Philippine government currently practices high taxes and high government spending
Monetary Policy
- Government controls money supply
- Government attracts more foreign investors and sells more stocks, bonds, and treasury bills
- Government offers foreign investors a discount rate
- Government invests in foreign projects and invest in foreign stocks, bonds, and treasury bills.
The money supply in the Philippines has a reserve ratio which has 2 parts, the spend and the reserve. 60:40 60 is
spend and 40 is the reserve

ELEMENTS OF FISCAL POLICY

Taxation - Means of obtaining revenue/s from government, as a means of transferring
resources from private to public sector.
Expenditure - Means the amount of the expenses of the government to finance the goods
and services they provide
Debt Management - How government manage the debts in the country in various forms

PUBLIC FINANCE
Income - It is the financial resources that the government get from taxes and other
revenues.
Outgo - Is the government’s expenditure of funds to finance the goods and services.
5 STEP PROCESS OF PUBLIC FINANCE
1. The formulation of fiscal policy
2. The generation of revenue from taxation and other sources
3. The expenditure of funds through the national budget
4. Public Borrowings
5. Accountability