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Philippines: Debt-to-GDP ratio at 60%
A bank analyst said the country’s fiscal authorities may need to reassess their present debt-to-gross domestic product (GDP) reduction strategy as credit downgrades loom.
In a Thursday commentary, ING Bank Manila senior economist Nicholas Antonio Mapa noted that Fitch Ratings highlighted the scarring effects of the prolonged downturn in economic activity as well as how weak growth could affect the country’s overall fiscal health.
“From this prognosis, it is quite clear that debt watchers are now increasingly concerned about the medium-term growth prospects for the Philippines, suggesting that the so-called solid fundamentals are now being questioned,” he emphasized.
Another issue is the Philippines’ current debt-to-GDP ratio, which is currently at more than 60 percent of GDP, according to Mapa.
He went on to say that the 60-percent mark is the point at which debt monitors start to worry, and it has already piqued Fitch’s interest.
“One can only guess that the other two, Moody’s [Investors Service] and S&P [Global Ratings], are likely monitoring this metric very closely as a prolonged sortie into 60-percent territory could be a recipe for downgrades.”
As a result, Mapa believes that authorities must lower this percentage and that they have three alternatives to do so: limit the deficit, boost growth to create revenue or a combination of the two.
But, he said, the weapon of choice has been to limit the deficit as evidenced by the government’s “allergic” reaction to plans for Bayanihan 3 or a major spending package.
Mapa said the current policy has resulted in GDP growth falling by 9.5 percent in 2020, the deficit-to-GDP ratio climbing dramatically to 9 percent in the first quarter of 2021 and the overall debt-to-GDP ratio exceeding the key 60-percent barrier closely monitored by rating agencies.
Despite this recent setback, government officials appear unconcerned about current trends, implying that things will improve sooner rather than later, he pointed out.
With these, Mapa suggested that, “Authorities may need to revisit their current debt-to GDP alleviation strategy as credit downgrades, something they so meticulously avoided, loom.”
He stressed that quicker growth generates revenue streams and employment, and that “penny-pinching” has resulted in five consecutive quarters of negative GDP.
Lastly, Mapa said that despite the headline-grabbing optics of double-digit year-on-year growth, the six-week enhanced community quarantine will wipe out any remaining momentum supplied by low base effects, resulting in a return to negative quarter-on-quarter growth.
Source: https://www.manilatimes.net/2021/07/23/business/top-business/debt-to-gdp-ratio-at-60/1808113