THE PHILIPPINES may lose its investment grade rating if it fails to reform the pension system for military and uniformed personnel (MUP), Finance Secretary Benjamin E. Diokno said on Wednesday.
This would affect the Philippine government’s efforts to cut its debt levels, Mr. Diokno said during a Development Budget Coordination Committee (DBCC) briefing at the Senate.
“The rating agencies look at that. If we continue to ignore the military pension system, our investment grade will likely become ‘junk,’” he said.
Mr. Diokno said that if debt watchers downgrade the country’s investment grade rating to “BB+” and below, it will be more difficult for the government to borrow and finance the budget.
The National Government’s (NG) debt as a share of gross domestic product (GDP) stood at 61% at the end of the second quarter, slightly above the 60% threshold considered by multilateral lenders to be manageable for developing economies. The Marcos administration is targeting to lower the debt-to-GDP ratio to 51.1% by 2028.
Philippine sovereign bonds have a “Baa2” rating from Moody’s Investors Service, BBB+ from S&P Global Ratings, and BBB from Fitch Ratings. All three debt watchers have assigned a “stable outlook” for the Philippines, indicating that no rating changes may occur in the next 12 to 18 months.
Mr. Diokno has been pushing for reforms in the military and police pension system, which does not require them to contribute to their pensions and is sourced entirely from the government budget.
“The amount that we allocate for military pension is much higher than the current operating budget,” he said.
Under the 2024 National Expenditure Plan, the proposed allocation for pension benefits of uniformed personnel and veterans is P140.68 billion, 3.5% up from the P139.5-billion budget this year.
“The pension system that is for the military is not a real pension system in the following sense — there are no contributors,” Mr. Diokno said.
“A pension system is where the beneficiaries of the pension system contribute to the system and there is a government counterpart, but in this particular sense, there is no contribution on the part of the beneficiaries, and we only appropriate it annually,” he added.
A House of Representatives ad hoc committee approved on Tuesday a consolidated bill that seeks to reform the military pension system.
Under the measure, all MUP would be required to contribute to the pension fund.
The MUP pension reform bill is on the Legislative-Executive Development Advisory Council’s list of 20 priority measures that are targeted for approval by December. — Keisha B. Ta-asan