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Can the Economy Outgrow

the National Debt?

Felipe M. Medalla
UP School of Economics
Persistent Philippine economic problems that
were aggravated by the global financial crisis

• Tight Fiscal Situation and Poor

Revenue Performance
• Inadequate Infrastructure
• Weak Investor Confidence due to
Governance concerns
• Small Narrow, and Stagnant
Industrial Base
• High Incidence of Hunger and
• Dismal Education Outcomes
A country with a very young
…the vast majority of whom were born from
mothers who have low education (and have more
children than they “desire”)
Fertility by Mother’s Desired Actual
Education Fertility Fertility
No education 4.1 5.3
Elementary 3.3 5.0
High school 2.5 3.5
College or higher 2.2 2.7
The poorest forty percent of the mothers account
for 56% of the births…

Fertility by Wealth Quintile Desired Actual

Wealth index quintile Fertility Fertility

Lowest 3.8 5.9

Second 3.1 4.6
Middle 2.6 3.5
Fourth 2.2 2.8
Highest 1.7 2.0
And many of their children don’t finish
elementary school.
Enrollment growth has lagged behind the growth of
school-age population.
National Government Debt Nearly Doubled From 2.2
to 4.2 Trillion pesos.
A big part of the increase in the public debt
is not due to the national government ‘s
budget deficit
In a stable macroeconomic environment, the economy can
out-grow the debt even with modest deficits provided that
off-budget deficits can be eliminated.
The Philippine economy was less affected by the
global crisis because exports of people of services
were less affected than the global trade of goods
and services.
2008, in million U.S. dollars
CURRENT ACCOUNT Goods Services Income Transfer
Receipts 48,202 10,194 5,973 15,780 80,149
Payments 60,784 8,756 5,827 555 75,922
Surplus/Deficit -12,582 1,438 146 15,225 4,227
CAPITAL ACCOUNT Direct Inv. Portfolio Derivative Other
Inv. s
Net Inflow/Outflow 1,283 -2,584 -144 -469 -1,914


But remittances were much more resilient than
Because of OFW remittance we have a BOP
current account surplus and a large and growing
international reserves.
That we have a BOP Current Acct Surplus also
means that there are more than enough savings
(low rates of investments meant that much of the
OFW savings ended up as reserves of the BSP)
If not for the large excess savings, the ballooning
government deficit could have caused a lot of
problems .
Unlike what happened in the past, the
growth in the budget deficit did not cause a
spike in interest rates.