BASICS OF FISCAL, MONETARY AND EXTERNAL SECTORS
● The departments involved in the fiscal sector are mainly the Department of
Finance and the Department of Budget and Management. Under Department
of Finance are Bureau of Internal Revenue (BIR), Bureau of Customs (BOC) and
the Bureau of Treasury (BOT) plus other agencies we will not tackle.
● The main tax collection agencies BIR and BOC collect tax revenues and
because of fiscal deficits the BOT issues local government bonds (treasury
bills and bonds) and international bonds to the foreign markets, which are in
effect borrowings in the form of bonds.
● The advantage of domestic local bonds (T bills and the like) is that there is no
risk of devaluation. If there is devaluation dollars become more expensive in
pesos. Right now a bigger portion of our govt debt is in domestic debt.
● But the Philippines also borrow from foreign multilateral agencies like the IMF
(International Monetary Fund, WB (World Bank) and ADB (Asian Development
Bank) because of low interest rates and long term in terms of payments. Like
they were giving us sizeable loans for purchase of vaccines.
● Sometimes the Bureau of Treasury also issue international bonds in the
private financial markets. Often this is to demonstrate the foreign investors
have strong confidence in us (during the good times, not now).
● The issue of fiscal deficits and debt has been controversial. The more
conservative sectors prefer a more balanced budget, ie little fiscal deficits. The
danger of too big a fiscal deficit is that over time, our debts may be too big and
the govt cannot pay back. The loss in confidence may cause chaos and
economic havoc. Especially if the debts are in foreign currency, this may cause
damaging devaluations and further havoc in the economy. We had been
upgraded by international rating agencies under PNoy and Duterte (before this
pandemic) because of our fiscal prudence and manageable fiscal deficits.
More private and pro-market advocates also say government spending ‘crowd
out’ private investments – the credit that should have gone there.
● On the other hand, too conservative an approach may hinder vital government
spending, as we discuss in the previous ppt. This controversy exploded in 2020
● The departments involved in the fiscal sector are mainly the Department of
Finance and the Department of Budget and Management. Under Department
of Finance are Bureau of Internal Revenue (BIR), Bureau of Customs (BOC) and
the Bureau of Treasury (BOT) plus other agencies we will not tackle.
● The main tax collection agencies BIR and BOC collect tax revenues and
because of fiscal deficits the BOT issues local government bonds (treasury
bills and bonds) and international bonds to the foreign markets, which are in
effect borrowings in the form of bonds.
● The advantage of domestic local bonds (T bills and the like) is that there is no
risk of devaluation. If there is devaluation dollars become more expensive in
pesos. Right now a bigger portion of our govt debt is in domestic debt.
● But the Philippines also borrow from foreign multilateral agencies like the IMF
(International Monetary Fund, WB (World Bank) and ADB (Asian Development
Bank) because of low interest rates and long term in terms of payments. Like
they were giving us sizeable loans for purchase of vaccines.
● Sometimes the Bureau of Treasury also issue international bonds in the
private financial markets. Often this is to demonstrate the foreign investors
have strong confidence in us (during the good times, not now).
● The issue of fiscal deficits and debt has been controversial. The more
conservative sectors prefer a more balanced budget, ie little fiscal deficits. The
danger of too big a fiscal deficit is that over time, our debts may be too big and
the govt cannot pay back. The loss in confidence may cause chaos and
economic havoc. Especially if the debts are in foreign currency, this may cause
damaging devaluations and further havoc in the economy. We had been
upgraded by international rating agencies under PNoy and Duterte (before this
pandemic) because of our fiscal prudence and manageable fiscal deficits.
More private and pro-market advocates also say government spending ‘crowd
out’ private investments – the credit that should have gone there.
● On the other hand, too conservative an approach may hinder vital government
spending, as we discuss in the previous ppt. This controversy exploded in 2020
