Philippine debt-to-GDP ratio has risen 60.4% in Q1, now slightly above the recommended international threshold

The Philippines’ debt-to-gross domestic product ratio (GDP) ratio, a measure of an economy’s financial leverage, has jumped to 60.4% in the first quarter, slightly above the 60% threshold which multilateral lenders and credit-rating agencies consider “manageable.”

The latest Bureau of the Treasury data showed that domestic debt-to-GDP climbed to 43.4% in March from 37.3% at the end of last year while the external debt-to-GDP ratio declined to 17% in the first quarter from 17.3% at the end of last year.

The national government’s outstanding debt hit a new high of ₱10.77 trillion in March.

The Philippines’ GDP shrunk by 4.2% year-on-year in the first quarter as the value of goods and services produced in the country fell to ₱4.35 trillion from ₱4.45 trillion a year ago. The Development Budget Coordination Committee has estimated nominal GDP to hit ₱19.98 trillion by the end of 2021 if the economy were to grow by 6.5 to 7.5%.

Treasury data showed the first-quarter debt-to-GDP level was the highest in 16 years or since the 65.7% recorded in 2005.

Due to fiscal prudence across several administrations, the Philippines’ debt-to-GDP gradually declined from as high as 71.6% in 2004 to a record low of 39.6% in 2019. However, as COVID-19 weakened revenue collection, the government ramped up borrowings last year such that debt-to-GDP rose to a 14-year high of 54.5% in end-2020.

The Philippines and other emerging markets may be burdened with bigger debt servicing as a result of higher expenditures to fight COVID-19 and weaker revenues.

In a May 11 report, Singapore-based United Overseas Bank (UOB) noted that the Development Budget Coordination Committee (DBCC) had programmed the national government’s outstanding obligation to end 2021 at 57.8% of GDP, or a debt stock of ₱11.5 trillion.

The government is set to borrow ₱3.03 trillion this year, 85% of which (₱2.58 trillion) will come from the local debt market

“The Philippines’ public debt is financeable given the country’s big domestic savings pool (IMF estimate: 20.6% of GDP in 2020, 25.3% in 2019, 19.7% in the 2000s, and 18.5% in 1990s) boosted by remittances, business process outsourcing earnings, and decent GDP growth of 6.4% on average over the last ten years prior to the pandemic.

The debt portfolio also reflects minimal exposure to interest rate volatility as just 10% of the debt stock is subject to rate refixing. The tax-to-GDP ratio remained stable at 14%in 2020 suggesting a strong ability to generate revenue for servicing the national debt,” said UOB economist Jasrine Loke.

SOURCE: Inquirer