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Debt-to-GDP ratio seen further declining

/ 12:26 AM May 26, 2017

Even as the government plans to borrow more to finance infrastructure projects, the Department of Budget and Management yesterday said the share of debt to the gross domestic product (GDP) would decline to 36.7 percent by 2022 amid sustained robust economic growth.

In a statement, the DBM said the government was planning to finance its “bold” infrastructure program through an expansionary fiscal policy entailing a wider budget deficit equivalent to 3 percent of GDP in the next six years compared with the previous administration’s annual program of 2 percent.

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Also, “the government will borrow money to finance the deficit following an 80-percent local, 20-percent foreign borrowing mix in favor of domestic sources, ” the DBM said. This is seen to lower foreign exchange risks.

“Nevertheless, the Philippine economy will outgrow its debt burden as GDP growth will outpace that of borrowing. Hence, the fiscal strategy is manageable and sustainable. In fact, the debt-to GDP ratio is projected to decline from 42 percent in 2016 to 36 percent in 2022,” according to the DBM.

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The government targets a 6.5- to 7.5-percent GDP growth this year, before rising to 7 to 8 percent yearly from 2018 to 2022.

Besides borrowing to finance the wider deficit program, the infrastructure buildup would also rely on additional revenues to be raised from the Duterte administration’s comprehensive tax reform program.

“The borrowings will be complemented by higher revenue effort resulting from tax policy and tax administration reforms courtesy of the comprehensive tax reform package being proposed by the Department of Finance. It is expected to bolster revenue collection from 15.3 percent of GDP in 2017 up to 17.7 percent of GDP in 2022, with tax reform contributing more than P200 billion in revenues annually,” the DBM said.

Last month, government economic managers unveiled the administration’s “Dutertenomics” thrust of “build, build, build” that they claimed would usher in a “golden age of infrastructure.”

The government plans to roll out over P3.6 trillion in public infrastructure projects from 2018 until 2020 while also jacking up to 75 from 55 previously the number of so-called flagship, “game-changing” projects that the administration aims to start and complete before 2022.

Some P8 billion to P9 trillion will be spent by the Duterte administration in the next six years to build vital infrastructure such that the share of infrastructure spending to GDP will rise from 5.3 percent this year to 7.4 percent in 2022.—BEN O. DE VERA

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TAGS: Department of Budget and Management, gross domestic product (GDP), infrastructure projects
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