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China Cannot Turn The Philippines Into Another Sri Lanka

27 November 2018 - 665   - 1

China cannot do to the Philippines what it did to Sri Lanka -- use the “debt trap” to acquire key sea outposts -- because the Philippines economy doesn’t resemble Sri Lanka’s.

Sri Lanka’s debt trap saga began with Beijing lending that country funds needed to have its ports upgraded by Chinese construction companies. When Sri Lanka couldn’t pay back the loans, Beijing turned them into equity. And that gave China ownership and control of Sri Lanka’s two major ports.

Recently, China and the Philippines signed agreements for several infrastructure projects to be financed by Beijing. But there are a couple of things that make China's Sri Lanka strategy very unlikely in the case of the Philippines.

 

One of them is that the Philippines is better in managing foreign loans than Sri Lanka.

That’s according to Jay Batongbacal, director of the University of the Philippines' Institute for Maritime Affairs and Law of the Sea. “The Philippines is smarter and more experienced in managing loans,” Batongbacal’s quoted saying in GMA NEWS OLINE.

Apparently, Mr. Batongbacal is referring to the Philippines’ ability to avoid outright debt crises seen in other emerging market economies.

Then, there’s the size of the Philippines economy. The Philippines GDP is roughly four times that of Sri Lanka’s—see table.

Philippines vs Sri Lanka Key Economic Metrics

Country/Metric The Philippines Sri Lanka
GDP $314 billion $87 billion
GDP Annual Growth 6.1% 3.70%
Current Account to GDP -0.8% -2.6%
Debt to GDP 42.10% 77.6%
Foreign Currency Reserves $74722 million 1386167 LKR Million

Source: Tradingeconomics.com 11/22/2018

And there’s the state of the Philippines’s economy, which doesn’t run the risk of a debt crisis anytime soon, as Sri Lanka did early this year.

To begin with, the Philippines economy has been growing at a robust pace. As of the September quarter of 2018 the annual growth was standing at 6.1%—well above the 3.79% for the period 1982-2018.

Then there’s the country’s tamed Current Account deficit. It stands at 0.80%, close to the average of -0.45% for the period 1980-2017. That means that the country is living close to its means, thanks to remittances by overseas Filipinos, of course.

Most notably, government debt stands at  42.10% of GDP, well below the average of 56.25% for the period for the period 1990-2017, which makes it very unlikely that the country will run into any debt crisis any time soon.

And if it does, it has plenty of foreign reserves to deal with the situation. The Philippines’ Foreign Exchange Reserves stand at $74722 Million, well above the average of 16341.45 USD Million for the period 1960-2018.

These statistics stand in sharp contrast to those of Sri Lanka’s, where the GDP grew at an annual rate of 3.70% in 2018, well below the 5.88% average for the period 2003-2017.

Sri Lanka is running a Current Account deficit of 2.60% of GDP, half of the -5.47% average for the period 1980-2017. That means that the country is living beyond its means, relying on foreign money to sustain its living standards.

That could explain the country’s large government debt, which stands at 77.60% of GDP—well above the average of 69.69% for the period 1950-2017.

Meanwhile, foreign Exchange Reserves stand at 1386166.90 LKR Million in July of 2018—well below the average of 250901.90 LKR Million for the period 1975-2018.

The bottom line: China cannot turn the Philippines into another Sri Lanka, because its economy is large and growing fast. Filipinos live within their means. And the country’s central bank has the foreign currency reserves to deal with the prospect of a debt crisis.

(This article first appeared in Forbes)

  Comments - 1

  • bindu Tuesday, 25 December 2018 09:17 AM

    We need a new government consisting of Sinhalese, Muslims and Tamils free from all the present day politicians but Sri Lanka is a Sinhalese Buddhist country.

    Reply : 0       0

    Leave a comment



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