Debt payments share to GDP going down
By Michelle Remo
Philippine Daily Inquirer
First Posted 20:55:00 09/21/2008
Filed Under: Economy, Business & Finance,Government
THE SHARE OF THE GOVERNMENT’S DEBT payments to the country’s gross domestic product is expected to go down to 7.8 percent next year from 8.3 percent seen this year.
This was according to projections made by the Department of Finance, which said that a declining debt service-to-GDP ratio meant that a bigger portion of the economy’s income could be used for productive spending rather than for paying the liabilities of the state.
The government is scheduled to pay P681.5 billion in debts next year, up 7 percent from the P636.1 billion this year.
But the DOF said the country’s GDP, in nominal terms, could grow at a faster pace of 13 percent next year to P8.69 trillion from the projected P7.68 trillion this year.
GDP is the sum of the values of goods produced and services rendered within the economy in a given period. Nominal GDP uses current prices of goods and services, while real GDP factors out inflation by using prices during the base year used.
Debt service-to-GDP ratio is one of the indicators used in measuring an economy’s ability to further grow.
Last year, the country’s debt service-to-GDP ratio stood at 9.2 percent. It was a result of P614.1 billion worth of obligations paid and a nominal GDP of P6.65 trillion.
The debt stock of the government continues to grow yearly since its revenue remains short of its funding requirement.
Finance officials said the debt stock would begin to dwindle when a balanced budget is achieved and sustained.
Despite the growing debt stock, officials said, the economy’s capability to service its obligations had been improving steadily.
Of the amount to be paid next year, P378.9 billion represents principal obligations while interest charges account for P302.6 billion. The government resorts to foreign borrowings to settle principal debts but it uses internally generated funds to pay interest on loans.
The budget department earlier said the share of the government’s interest payments to total internally generated revenue have been falling over the years.
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