BICOL UNIVERSITY

GRADUATE SCHOOL
LEGAZPI CITY

Name: GRACE R. CAMPOS Year & Course: 2ND YR EDD ELM

Course Code and Description: PhDPA 311 Financial Management in Government
Professor: DR. RAMESIS LORINO

REFLECTION PAPER 1

Over time, economic activity is regulated by monetary and fiscal policy. They
can be used to either regulate growth and activity when an economy starts to overheat or
to boost growth when it starts to slow. Fiscal policy can also be used to redistribute wealth
and income.
An economy can be significantly impacted by the financial choices made by
households. For instance, households may decide to spend more than they save, which
will enhance employment, investment, and ultimately profits. Business investment
choices can also have a significant impact on both corporate profitability and the real
economy. However, businesses rarely have the power to significantly alter huge
economies on their own; the spending decisions of a single household will have little
bearing on the economy.
Governmental choices, however, can have a significant impact on even the
biggest and most sophisticated economies for two basic reasons. First off, a large section
of the population is typically employed in the public sectors of most developed economies,
and they are typically in charge of a sizable portion of economic spending. Second, in the
global debt markets, governments also borrow the most money.
The term "monetary policy" refers to actions taken by the central bank with the
intention of affecting the amount of credit and money in an economy. Fiscal policy, on the
other hand, refers to the choices made by the government on taxation and spending.
Fiscal and monetary policies are both employed to control economic activity over time.
They can be used to either regulate growth and activity when an economy starts to
overheat or to boost growth when it starts to slow. Fiscal policy can also be used to
redistribute wealth and income.
The establishment of an environment where growth is steady and positive, and
inflation is steady and low is often the overriding goal of both monetary and fiscal policy.
Importantly, the goal is to direct the underlying economy away from economic booms that
might be followed by protracted stretches of low or negative growth and high
unemployment. Households can feel confident in their spending and saving choices in
such a stable economic climate, while businesses can focus on their investment choices,
making regular coupon payments to bondholders, and increasing earnings for their
shareholders.
The obstacles to achieving this broad objective are numerous. Along with
shocks (like spikes in the price of oil), economies are also typically subject to natural
cycles, according to some economists. Furthermore, there are numerous instances in
economic expansion that ultimately had detrimental effects on the real economy, financial
markets, and investors.
 The fiscal policy stance, as set by the fiscal authorities, is intended to offer
solid public funding, including a commitment to medium-term goals mixed with the
flexibility to react to rapidly shifting economic conditions in the short term. Its
measurement considers medium-term contingent liabilities as well as cyclical changes in
the economy. However, the Philippines experienced a debt problem in the 1990s, as
noted in the paper by Briones. Issues with public finances caused the rise in the price of
oil, the high rate of inflation, and problems with foreign debt.
A flaw in Philippine economic policy was its ongoing reliance on borrowing from
abroad to finance local projects. As a result of increased government spending and
foreign borrowing, the Philippines was able to continue economic growth despite an
external recession. The Philippines was more adversely affected by outside shocks than
most debtor nations. However, the Philippines' debt crisis was not solely brought on by
the second oil price shock and an increase in global real interest rates. Even without the
shocks of the 1980s to hasten the process, the Philippines had built up a borrowing
momentum that could not be maintained, and the nation would eventually have
experienced an external crisis.
Over the years, the Philippines' fiscal situation has dramatically improved. By
2005, it was well acknowledged that the national government's fiscal position was
precarious. However, over the past six years, the Philippines' debt increased to trillion-
dollar levels, and the prior and preceding administrations borrowed money from the
international financial institution and other nations to fund domestic initiatives. Tax
reforms had a major effect on revenue collected from employee salaries, real estate, and
local enterprises.
The government should’ve learned from experience about the impact of
external debt on the lives of Filipinos. Debt reduction should be the priority of the
government and intensify the collection of revenues to finance local projects. The national
government should have a clear road map on what to achieve and leave other projects
under the power of local government units. Debt reduction will be achieved through high
revenues of the government from taxes and investments in the country.
And at the latest, the Philippines was hit by several shocks, including the
COVID-19 health crisis, the global economic downturn, and devastating typhoons in
2020. It is anticipated that these shocks will cause the economy to contract by 8.1 percent
in 2020, temporarily undoing recent progress in reducing poverty. However, sustained
advancements in pandemic management and a potential global economic recovery can
aid the nation's recovery in 2021 and 2022 (The World Bank, 2020).
The present administration, however, heavily relies on external debts and
confidential funds to finance government projects. By the end of July 2022, the National
Government (NG) owed a total of P12.89 trillion. The P96.09 billion or 0.8% increase over
the level at the end of June 2022 was brought on by net domestic and international loan
issuances as well as currency changes (Bureau of the Treasury, 2022). In September
2022, the annual inflation rate in the Philippines increased to 6.9% from 6.3% in August,
exceeding market expectations of 6.7%. It exceeded the central bank's goal range of 5.9
to 6.7% for the month, reaching its highest level since February 2009, with food prices
rising at their fastest rate in over four years (7.4% vs. 6.3% in August) (Trading
Economics, 2022).
Most developing nations have struggled to generate sufficient revenue over
time to fund their budgets. They are consequently forced to deal with the issue of twin
deficits and rely on both domestic and external debt to fund their developmental initiatives.
The benefits of public debt stem from the fact that, when done properly, debt financing
increases growth in resource-constrained economies and increases those economies'
capacity to service and repay external and internal debt. But in the case of the Philippines,
debts pile up and are paid by the Filipinos for decades. The extreme corruption in the
government defeats the purpose of borrowing money to finance quality services for the
people.
To sum this up, the Philippines needs to intensify tax collection. As the
country’s economy opens, the disrupted collection of tax revenue during the pandemic
should be pushed through by the government. Tax reforms are also needed, people
should have the high buying power to decrease the rate of inflation. Debt reduction should
be prioritized, alternative debt policies should be made to avoid economic fall-out and
improve the living conditions of the Filipinos. Campaign against corruption should also be
intensified, and constant monitoring and audit should be done by different government
agencies. And ultimately, as Filipinos, we should be responsible and help boost the
economy through paying proper taxes and patronizing local businesses and products to
help boost the internal revenue of the country.

References:

Press Release. National Government Debt Recorded at P12.89 Trillion as of end-July

2022. Bureau of the Treasury. Retrieved from:
https://www.treasury.gov.ph/wp-content/uploads/2022/09/NG-Debt-Press-
Release-July-2022_final.pdf.
The World Bank. (2020). Philippines: While Battling the Pandemic, Strengthening
Disaster Risk Reduction and Management Needed to aid Recovery. Retrieved:
https://www.worldbank.org/en/news/press-release/2020/12/08/philippines-
while-battling-the-pandemic-strengthening-disaster-risk-reduction-and-
management-needed-to-aid-recovery.
Trading Economics. (2022). Philippine Inflation Rate. Retrieved:
https://tradingeconomics.com/philippines/inflation-cpi.