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Philippines debt to GDP ratio rises to 54.5% in 2020
MANILA, Philippines — The country’s risks from debt exposure are minimized even as the share of debt to gross domestic product (GDP) rose to a 14-year high in 2020, according to the Department of Finance (DOF).
In an economic bulletin released over the weekend, Finance Undersecretary Gil Beltran said the low interest rate regime helped cushion the impact of the rise in debt-to-GDP ratio to 54.5 percent last year due to pandemic-related spending.
“As long as debt is managed prudently, as shown in the ratios, the risks from debt exposure are minimized and additional resources continue to be obtained for projects that contribute favorably to development,” Beltran said.
He said interest payments rose by only 5.4 percent, from P360.9 billion in 2019 to P380.4 billion in 2020.
The proportion of interest payments to revenues thus increased from 11.50 percent in 2019 to 13.32 percent in 2020, but the share of interest payments to expenditures declined by 0.5 percentage points from 9.5 percent in 2019 to nine percent in 2020.
The average interest rate on national government debt declined from 4.67 percent in 2019 to 3.88 percent in 2020.
The country’s debt-to-GDP ratio so far remained below the international acceptable threshold of 60 percent of GDP, effectively giving the government elbow room to spend and borrow more to support the economy.
The deterioration in the country’s debt-to-GDP ratio in 2020 was a result of the record economic contraction and heightened spending due to the pandemic. In 2019, the country’s debt-to-GDP ratio stood at a record low 39.6 percent.
The debt-to-GDP ratio is used by debt watchers and credit rating agencies to assess a country’s debt sustainability.
A lower ratio indicates a government is generating more resources than debt, giving it greater payment capacity.
The Philippines has a slightly higher debt ratio compared with its ASEAN peers.
ASEAN sovereign debt ranged from 38.5 percent to 67.6 percent of GDP with the Philippines in the middle of the scale.
The government’s pandemic response led to a record 7.6 percent budget deficit last year as spending outpaced revenue generation.
“Unlike in previous high deficit episodes when government had to face both sky-high interest rates and a weakening peso, the national government emerged out of last year’s episode with lower debt service, low interest rates and a stronger peso,” Beltran said.
Source: https://www.philstar.com/business/2021/03/22/2085980/philippines-debt-gdp-ratio-rises-545-2020