PH's investment credit rating and interest rates 'will go to hell' under federalism - Dominguez

PH's investment credit rating and interest rates 'will go to hell' under federalism - Dominguez

President Rodrigo Roa Duterte’s Economic team is all for Federalism but it is with some apprehensions.


Department of Finance Secretary Carlos G. Dominguez III, Duterte’s chief economic manager in a recent Senate hearing warned that the country’s interest rates will skyrocket once the shift to a federal form of government is drastically adopted without fully understanding the fiscal risks that comes with it. He notes that the draft Constitution needs further in depth discussions as it has “ dire irreversible economic consequences.”


Dominguez explains that the country’s current investment grade credit rating status along with its stable interest rate environment “will go to hell” under the current draft of adopting a federal form of government. 

President Duterte's finance chief Secretary Carlos Dominguez III (photo credit to Manila Bulletin)

The finance chief said that with respect to the credit ratings and interest rates the effect on the country’s economy is “tremendous, it will go to hell… everybody pays higher interest rates, 600 basis points [increase].”


He remains unconvinced that changing the current form of government is for the best of the economy, he noted that he got confused when he read the draft of the federal constitution.

“I did meet with former Senate President Aquilino Pimentel and some members of the commission, and I asked them who’s going to pay for the national debt?

Who’s going to pay for the military?” Dominguez told the senate.

The top economic chief notes that the federal draft Constitution was silent on the national government’s multi-trillion pesos debt.

“We’re very confused by the draft,” the finance chief admits.

Under the draft there will be 50:50 revenue sharing, wherein the regions will receive 50 percent from all national income sources collected by the Bureau of Internal Revenue (BIR) and bureau of Customs (BoC).


The finance chief notes that the 50:50 revenue sharing is detrimental to the national government. The fiscal position of government if federal form is adopted hastily will result to - “it’s a very large [budget] deficit.”


Dominguez also said the adoption of federalism will derail the Duterte’s ambitious infrastructure program, if ambiguties in the draft are not well explained


“I think there are a lot of issues that need to be worked out, and it’s good that it’s being discussed publicly right now, and that’s [fiscal] just one of the issues that we see from the fiscal point of view,” Dominguez said.


“If we don’t manage this correctly, this can end up to be a fiscal nightmare,” he added.


Last week Secretary Dominguez gave the statement regarding the draft Federal Constitution which states that:

“We welcome a discussion on the draft so that it is clear and unambiguous. We do not want the revenue assignment and the expenditure assignment to be misunderstood, as what happened in the recent case involving the Internal Revenue Allotment,” Dominguez said.


“As we pointed out earlier, we never stated that we are against federalism. Rather, with respect to the fiscal provisions of the proposed Constitution, there are ambiguous provisions on revenue assignment and there are no provisions on expenditure assignment,” the Finance chief said.
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