Sisyphus Retires

Analogies evolve over time. We used to compare the Philippines, for instance, to an “oriental pearl”, coveted by colonists due to its rich resource, lush nature, and industrious people. Martial Law was imposed and the Philippines became a “caged dove”, surrounded by barbed wires and the Philippine constabulary. Cory Aquino’s weak government, coupled with coup attempts, continuing insurgency, natural disasters, earned us a title of “sick man of Asia” by early 1990s. Then Fidel Ramos stepped in and re-branded the country as a “rising tiger”, zooming forward to year 2000.

The same thing is true with the Philippine debt. Before, the prevailing analogy would be something like the myth of Sisyphus — the hero condemned by Zeus to roll a rock to the top of the mountain only to have the rock fall down again at the bottom, ad infinitum. Our post-EDSA I economy has been condemned to two decades of indebtedness by strongman Ferdinand Marcos (who certainly acted like a Greek god during his reign). Then we were compelled to continuously borrow new debts in order to pay for maturing ones, lest we risk default. This is on top of borrowing to pay for the gap of our weak revenue efforts, in order to provide for social services and critical infrastructure (read: ZTE-NBN).

In our Sisyphus world, the rock gets bigger through time (no thanks to interest rates), but Sisyphus’ muscles also get stronger. This was the analogy of the Department of Finance (DoF) close to the end of administration of Benigno Aquino III — the son of the President who honored Marcos’ odious debts. Their story is this: as outstanding debt grew from P395.5 billion in 1986 to P5.95 trillion in end-2015, debt-to-GDP declined from 58.63% to 44.8%. Revenues per capita, adjusting for inflation, increased by 130.96% compared to 1986. Debt service burden, borrowings to revenues, and other indicators of “debt unsustainability” summarily declined via efforts of Ramos and Arroyo to securitize our debts and shift to domestic sources of credit.

Figure 1. Debt to Size of Economy (Source: National Accounts of the Philippines, Bureau of Treasury)

Figure 2. Revenue per Capita (2000 prices) (Source: PSA for population projections, BTr for Revenues)

The cost, of course, is staggering, as the Philippine government was compelled to abandon its citizens to chronic poverty and unprecedented misery, with the number of poor Filipinos, 24.45 million in 2013, barely moving from 23.97 million in 1986. Under-spending in infrastructure stopped our development clock at a time when our neighbours are zooming past the developing world status. Our unstable power situation due to lack of investments in power plants shooed away Japanese investors. Austerity in education pulled our students behind in ASEAN and world rankings. Our economy was eaten alive by our competitors, not unlike Sisyphus’ son Glaucus who met the same fate in the mouth of his horses.

But we all know that Greek tragedy.

Now, Sisyphus has seemingly mustered enough strength to push the rock uphill and suspend it there. It was as if Zeus’ punishment has ended. Our debt service (principal plus interest) to total expenditure (expenditures plus principal amortization) declined from 45.69% in 1987 to 20.16% in 2016 (18.07% projected for 2017). If we only take interest rate as percentage of expenditure, the decline was from 30.78% to 11.94% (10% projected for 2017) over the same period. Our average consolidated public sector deficit was reversed from 5.87% of our GDP in 1986 to a surplus of 0.59% of our GDP in 2016. In fact, we are actually failing to spend the money we already have, primarily due to lack of absorptive capacity of agencies.

Figure 3. Debt Service to Expenditure (Source: BTr)

DoF declared: the debt cycle has ended. No more pushing up a rock just to see it fall down again. Sisyphus can now retire. We need a new analogy.