The Public Sector: Debt sustainability handles

June 12, 2023 | 12:04 am

Introspective By Romeo L. Bernardo

 

I am pleased to share with readers, the fiscal sector section of our June 7 Quarterly Economic Outlook Report, “Growing Pains.” Christine Tang, Shane Sia and I wrote this for GlobalSource Partners (globalsourcepartners.com), a New York based network of independent analysts in emerging markets.

The National Government debt was steady at 61% of GDP in Q1, held down by a smaller budget deficit and a high denominator that reflected both real GDP growth and higher inflation. With nominal GDP expected to normalize ahead, the Finance department has come up with proposals to boost revenues and manage expenditures (see the Table) to bring the overall deficit down from the 6.1% of GDP target this year to 3% by the time this administration ends.

Based on the latest fiscal program, revenues, expected to dip to 15.2% of GDP this year from 16.1% last year, are targeted to grow 2 ppt to 17.2% by 2028 while expenditures, also expected to decline to 21.3% of GDP this year from 23.4% last year, are programmed to slide by 1 ppt more and maintained at around 20% of GDP.

OURVIEW
The previous administration raised the tax effort by 1.4 ppt between 2016 and 2019 through a comprehensive package of tax reforms. Given what this administration has presented so far, it is not clear that it can achieve a 2 ppt increase in the tax effort by 2028 with the package it has drawn up so far. The target requires government to generate incremental annual revenues of 0.3% to 0.5% of GDP but the revenue flows we have seen are not large: a.) PIFITA (Passive Income and Financial Intermediary Taxation Act) is expected to be revenue neutral, b.) the other three measures for near-term implementation are not expected to yield much, about half of 0.1% of GDP per the IMF’s 2022 Article IV report, and, c.) the second set of measures are estimated to yield a flat stream of annual revenues equivalent to 0.3% to 0.4% of GDP starting 2025.

The proposed budget reforms could help improve tax administration (e.g., digitalization) and create fiscal space through efficiency gains but we expect the benefits to be spread out over long time periods. Likewise, the recently approved Maharlika Investment Fund as well as the merger of the two banks, targeted by end-year, will need time to yield the promised benefits. In the limelight now is the politically sensitive military and uniformed personnel (MUP) pension reform which the IMF’s latest end of mission statement cited as “important to create fiscal space for economic and social priorities.” Department of Finance (DoF) officials are now doing the rounds of consultation with MUPs and the likely outcome would be a set of more modest changes that will reduce the annual drain on the budget and slow the growth of pension liabilities. (See the Box.)

Overall, we think that unless other revenue measures are identified, a gentler slope for debt reduction can be expected. Government is currently targeting to bring down the National Government debt ratio from 61% last year to below 51% by 2028.

 

 

Romeo L. Bernardo is principal Philippine adviser to GlobalSource Partners (globalsourcepartners.com). He serves as a board director in leading companies in banking and financial services, telecommunication, energy, food and beverage, education, real estate, and others. He has had a 20-year run in the public sector including stints in the Department of Finance (Undersecretary), the IMF, World Bank, and the ADB.

romeo.lopez.bernardo@gmail.com

The Sabah Dispute: A never-ending saga?

April 23, 2023 | 6:28 pm

Introspective By Amina Rasul

The longstanding dispute between the Philippines and Malaysia over Sabah has been ongoing for over a century, worthy of an epic Netflix series. Sabah, also known as North Borneo, is a resource-rich state located on the island of Borneo. The dispute stems from competing historical claims to the territory by both the Philippines and Malaysia.

However, I won’t go into this contentious sovereign claim between the two governments. Instead, let’s focus on the proprietary claim — about the legitimate claims of Filipino heirs to a property in Malaysia that has been rented or leased by a foreign entity.

Last August, I wrote about the victory of several descendants of then Sulu Sultan Jamalul Kiram II, who had filed a case, “Heirs to the Sultanate of Sulu v. Malaysia,” with the French Arbitration Court. On Feb. 28, 2022, the court ruled in their favor, awarding them $14.92 billion in restitution value over the leased territory along North Borneo. Malaysia was also ordered to pay interest at a rate of 10% per annum, calculated on a simple basis, as well as the claimants’ legal fees. (Introspective, “$14.92 Billion Reasons: Sabah Claim”)

The drama does not end there. Last July, the claimants moved to seize two Luxembourg-based units of Malaysian state oil firm Petronas as part of efforts to enforce the award. On July 12, 2022, the Malaysian government filed a case with the Paris Court of Appeal to stay the enforcement of the final award in the Heirs of the Sultan of Sulu v Malaysia. The Court issued a stay, on the grounds that an award of damages, based on the restitution value of disputed territory, presented a risk of serious prejudice to territorial sovereignty that warranted a stay.

Recently, Malaysian news reported that the government will hold a roadshow overseas to explain that the Sulu sultanate’s claims against Sabah and Malaysia are baseless. The roadshow would be conducted by the Prime Minister’s Department on Law and Institutional Reform.

This comes after Prime Minister Datuk Seri Anwar Ibrahim met with President Ferdinand Marcos, Jr. on March 1 at Malacañan Palace where, according to the news, both agreed to hold in-depth discussions on their territorial dispute over Sabah.

The latest salvo by Malaysia: Fuad Kiram, one of the representatives of the Sabah heirs who filed the case in the French court, was designated as a terrorist last week under the country’s anti-money-laundering and terrorism law. The basis for Malaysia’s declaration of Fuad Kiram as a terrorist lies in his alleged involvement in the 2013 Lahad Datu standoff, which was a conflict between followers of the self-proclaimed Sultan of Sulu, Jamalul Kiram III, and Malaysian security forces in Sabah. The conflict resulted in the deaths of over 50 followers of the Sulu Sultan and Malaysians.

Fuad Kiram is also one of the claimants to the throne of the Sulu Sultanate. There are so many claimants, I can no longer keep track. I can only say that Fuad’s brother — the late Sultan Mahakuttah Kiram — was crowned in the biggest public ceremony Sulu had witnessed. Then President Ferdinand Marcos, Sr. fully supported and acknowledged the accession of Mahakuttah to the throne. I was there, as my father, the late Ambassador Abraham Rasul, Sr., was Prime Minister of Sultan Mahakuttah as well as Mahakuttahs’s father, the late Sultan Esmail Kiram.

Will declaring Fuad a terrorist delegitimize the claim altogether? It is important to note that Fuad and the Kirams who filed the case in the French arbitration court are only representatives of the heirs of the Sultan Jamalul II. They are not the only heirs.

How do we determine who are the heirs of the Sabah property and the rental, lease, or cession payments owed?

In 1939, the late Dayang Dayang Hadji Piandao Kiram and eight other heirs of Sultan Jamalul Kiram II filed a civil suit regarding the “cession money” for North Borneo (Sabah) payable to the heirs of the sultan of Sulu. Jamalul Kiram II died childless in June 1936. Chief Justice Charles Macaskie of the High Court of North Borneo ruled on the share entitlement of each claimant to the “cession money” of 5,300 Malaysian ringgit per year: Dayang Dayang Piandao Kiram (who was awarded 3/8^th of the claim), Datu Punjungan Kiram, Datu Esmail Kiram, Dayang Dayang Sitti Rada Kiram, Princess Tarhata Kiram, Princess Sakinur-In Kiram, Dayang Dayang Putli Jahara Kiram, Dayang Dayang Sitti Mariam Kiram, and Mora Napsa. Since they are deceased, their heirs will inherit.

The declaration of Fuad Kiram as a terrorist by Malaysia has been criticized as a politically motivated move to discredit the heirs’ claim over Sabah and the so-called “cession monies.” However, Malaysia maintains that the declaration is based on the country’s national security interests and its commitment to combat terrorism and extremism.

Is there a resolution to this drama, set on a global stage?

The question we Filipinos must ask — what will our government do to protect our rights as citizens? If you were to ask me, I would say that it is time to be pragmatic and resolve the Sabah Claim through negotiations between the Malaysian and Philippine Governments. Both countries have much to gain with a settlement and much to lose if tensions escalate. PM Ibrahim knows the Philippines well and needs a political win. President Marcos Jr. can peacefully conclude a claim his late father had pursued. It is time for President Marcos Jr. to unite all the heirs, as the late former President Fidel V. Ramos had done, and pursue a just settlement of this contentious issue. Perhaps it is time to lay to rest both the sovereign claim and the proprietary claim.

 

Amina Rasul is President of the Philippine Center for Islam and Democracy and host of the She Talks Peace podcast.

 

aminarasul@yahoo.com