At the Senate hearing on Wednesday, Duterte’s Chief Economic Manager Finance Secretary Carlos G. Dominguez III said that with the country’s current investment grade credit rating status interest rate “will go to hell” under the draft federal Constitution.
Dominguez admitted that he is still not agreeable on changing the current form of government to shift to the proposed federal Constitution. “For best of the economy, I am not convinced on taking risks to shift the present form of government to federalism”, Dominguez said. He also noted that after reading the draft, all the more he got confused.
“I met with former Senate President Aquilino Pimentel and some members of the commission, and expressed my reservation by asking them who’s going to pay for the national debt?Who’s going to pay for the military?” Dominguez told the hearing.
But when Dominguez saw the draft federal Constitution, the finance chief found that it did not take into consideration on the national government’s multi-trillion pesos debt.
“We’re very confused by the draft,” Dominguez admitted.
Under proposed federal system, the regions will also get 50 percent share from all national income sources collected by the Bureau of Internal Revenue (BIR) and Bureau of Customs. And the 50:50 revenue sharing is detrimental to the national government, Dominguez warned.
Asked by Senator Ralph Recto about the estimated impact of the proposed revenue sharing scheme on the government’s fiscal position, Dominguez said “it’s a very large [budget] deficit.”
Recto further asked Dominguez about its effect on the country’s credit ratings and interest rates, Dominguez said it is “tremendous, it will go to hell… everybody pays higher interest rates, 600 basis points [increase].”
Dominguez also said that the proposed change in the constitution will derail the Duterte administration’s ambitious infrastructure program.During a Senate hearing last Tuesday, Dominguez already admitted that he had reservations on the fiscal provisions of the draft federal constitution.
“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.
“The country’s credit ratings may be downgraded if the Duterte administration continues to insist for the change in the form of government to a federal system due to uncertain economic and political outcomes”, Finance Secretary Carlos Dominguez III said.
In the Senate committee on finance hearing on the P3.757-trillion proposed 2019 budget, lawmakers questioned the country’s economic managers on the estimated cost of implementing a federal government based on the constitution drafted by the consultative committee, and National Economic and Development Authority (NEDA) Socioeconomic Planning Secretary Ernesto Pernia responded that transition cost to implement federalism would be roughly around P131 billion.