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Fitch sees Philippines debt-to-GDP ratio declining
THE Philippine government’s debt would decline during the next few years if economic growth is kept above 6 percent and the tax base is expanded, debt watcher Fitch Ratings said.
In a report, Fitch said current announcements, such as those made by Finance Secretary Benjamin Diokno, seem to indicate a desire to improve tax administration in order to increase government income, suggesting some upside risk to its revenue estimates.
It said the credit profile would benefit from a prolonged expansion of the government’s revenue stream that strengthens fiscal balances and puts the government debt-to-gross domestic product (GDP) ratio on a stable downward track.
“Under our baseline, the Philippines‘ government debt/GDP ratio peaked in 2021 at 54.1 percent and will decline over the next few years, with the general government deficit narrowing to 3.9 percent by 2024,” the credit rating agency underscored.
It said the forecasts are based on economic growth averaging 6.4 percent in 2022 to 2024.
Fitch projected GDP growth of 6.5 percent in 2022 and 6.3 percent in 2023, which it said would support the credit outlook, and that economic activity in industry and services sectors and from infrastructure development will continue to be strong in the Philippines over the next quarters.
Its growth outlook is greater than the actual GDP growth of 5.7 percent last year and falls within the government’s recently lowered 6.5- to 7.5-percent target for 2022. However, the estimate for 2023 fell short of the desired range of 6.5 to 8 percent.
Diokno has said the government will see to it that its debt-to-GDP ratio will normalize from this year’s level of 61.8 percent to 61.3 percent by 2023; to 60.6 percent by 2024; 59.3 percent by 2025; 55.7 percent by 2026; and 52.5 percent by 2027.
“In other words, by the end of the Marcos years, we expect the national debt-to-GDP ratio to be below 60 percent, which is the hold threshold,” he explained.
The national government’s outstanding debt amounted to P12.50 trillion at the end of May this year. The majority of the obligation was borrowed locally (69.3 percent), with the remaining originating from elsewhere.
Credit rating
In the meantime, Fitch said the implementation of the policy program will determine the effect of the incoming administration under President Ferdinand “Bongbong” Marcos Jr. on the Philippines’ investment-grade credit rating of “BBB.”
“Our view on the negative outlook will be determined by the extent to which the policy agenda will reduce uncertainty, in particular about the medium-term prospects for growth and public debt,” it added.
The debt rater said while the government is still working out its economic policy direction, it anticipates that the new administration will be broadly in line with current policies based on certain early signs.
It assumes, in particular, that the government will continue to put an emphasis on infrastructure spending, which is a major factor in the favorable medium-term development prospects for the country and supports the sovereign rating.
“We also assume macro policies to remain broadly the same. Key appointments to the economic team, including the Finance secretary, central bank governor and chief of [the] National Economic and Development Authority, are technocrats with significant experience in their institutions,” Fitch noted.
Source: https://www.manilatimes.net/2022/07/21/business/top-business/fitch-sees-ph-debt-to-gdp-ratio-declining/1851636