Philippines: Debt-to-GDP ratio rises to 17-year high in Q3
MANILA, Philippines — The share of national debt to the country’s output has jumped to 63.7 percent, the highest rate in 17 years, putting extra pressure on the need for more robust economic growth to help shrink ballooning obligations amid higher commodity prices and interest rates.
Data from the Bureau of the Treasury showed that the country’s debt level, when measured against the gross domestic product (GDP), increased to 63.7 percent in the third quarter from 62.1 percent in the second quarter.
The third quarter debt-to-GDP ratio effectively hit a 17-year high after the 65.7 percent recorded during the Arroyo administration in 2005.
Domestic debt as a share of GDP went up to 43.8 percent while the proportion of foreign obligations further increased to 19.9 percent.
Despite a better-than-expected 7.6 percent GDP print in the third quarter, the debt ratio still increased following the issuance of Retail Treasury bonds and global bonds, coupled with rising interest rates here and abroad.
Apart from rising interest rates, the continued depreciation of the peso also makes interest payments more expensive.
It should be noted that reducing the debt-to-GDP ratio would mean that economic growth should outpace the level of borrowings of the Philippines.
The current debt-to-GDP ratio remains above the internationally accepted threshold of 60 percent, which puts the Philippines at a vulnerable spot in terms of its capacity to pay off its financial obligations.
Nonetheless, economists told The STAR that such a growth path should be sustained if the government wants to bring down the debt level and shield the country from a potential credit downgrade.
Union Bank of the Philippines chief economist Ruben Carlo Asuncion is banking on the upcoming seasonal demand, pushing consumption and spending up even amid rising inflation.
ING Bank senior economist Nicholas Mapa added that fourth quarter GDP performance could still be good, but warned that hitting the 61.8 percent debt-to-GDP ratio target of the government may not be feasible.
“I don’t think we’ll be able to hit it, but as long as we demonstrate a commitment to lower and make some headway in fiscal consolidation we can still hope to avoid a downgrade,” Mapa said.
“Our strategy for fiscal consolidation was to outgrow debt. Despite the strong third quarter GDP print, the ratio increased, which means we will need another stellar fourth quarter GDP to hope to catch the target,” he said.
Mapa argued that the government must focus on revenue generation even as the administration has yet to come up with hard-hitting taxes that could help in boosting resources.
He said the government should already think twice in being open to new taxes, especially with the latest strong growth recorded that could potentially handle additional tax burdens.
Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, emphasized that timing may not be that good yet for higher or new taxes, as these could add to inflationary pressures.
“But once inflation stabilizes, there is a need to push for more tax reform measures, or at the very least intensified tax collections,” Ricafort said.
He added that the government should move to further reduce government spending, cut leakages, as well as prevent white elephants or very costly government projects to reduce the country’s debt.
For Asuncion, the government should focus on helping the economy stabilize by dealing with supply issues because monetary policy tightening may continue depending on how the US Federal Reserve moves in the coming months.
“Macroeconomic stability in food supplies and prices and containing inflation should be key, plus the gains in GDP growth should be sustained, and the environment for more recovery in the economy and jobs creation should be further pushed,” Asuncion said.
From a target of 61.8 percent this year, the government aims to bring down the debt-to-GDP ratio to 61.3 percent in 2023. By 2024, the ratio is seen at 60.6 percent.
This will reach the internationally accepted threshold by 2025 at 59.3 percent. Further declines are seen by 2026 and 2027 at 57.7 percent.
Once the term of Marcos ends in 2028, the debt-to-GDP ratio is targeted to be at 52.5 percent.
The country’s debt stock is currently at a record P13.52 trillion as of end-September, overshooting the expected obligations of the government by year end at P13.43 trillion.
This year, the government planned to borrow P2.21 trillion, of which P1.65 trillion would come from domestic sources while the remaining P561.5 billion would be from external sources.
This is 13 percent lower than the P2.55 trillion total borrowings for the whole of 2021.