DOF: Despite record-high 2017 debt, its share to economy lowest since 1980

Even as the national government’s outstanding debt rose to a record-high P6.652 trillion in 2017, its share to the gross domestic product remained the lowest since 1980 amid sustained robust economic growth, the Department of Finance’s chief economist said.

As such, Finance Undersecretary Gil S. Beltran sees the debt level still manageable, he said in a text message Tuesday.

Based on the latest Bureau of Treasury data, the national government debt-to-GDP ratio stayed at 42.1 percent at end-2017, similar to 2016.

The ratio has been on a downward trend from 51.5 percent in 2012, 49.2 percent in 2013, 45.4 percent in 2014, and 44.7 percent in 2015, Treasury data showed.

The debt-to-GDP ratio measures the capacity of economies to pay off debts.

“The national government debt as a proportion of GDP has sustained its level at 42.1 percent against the initial target of 40.7 percent presented to the Development Budget Coordination Committee in June last year. With full-year GDP growth of 6.7 percent, the stable performance of the economy has maintained the debt-to-GDP level from a year ago. The difference compared to the program is due to the lower than DBCC target nominal GDP and the successful issuance of retail treasury bonds [RTBs] in December to pre-fund some of the 2018 financing requirement,” the Treasury said in a statement.

The Duterte administration aims to further reduce the debt-to-GDP ratio to 37.7 percent by 2022.

Last Monday, the Treasury reported that outstanding obligations rose 9.2 percent from P6.09 trillion at end-2016 due to a weaker peso as well as an increase in domestic borrowings last year.

Last year, domestic debt, which accounted for two-thirds of the total, climbed 12.9 percent to P4.441 trillion from P3.934 trillion in 2016.

The amount of government securities sold last year, which comprised the bulk of local debt, jumped also by 12.9 percent to P4.441 trillion from 2016’s P3.934 trillion.

Besides the usual T-bills and T-bonds being issued by the Treasury weekly, the government also sold RTBs twice last year.

The Treasury raised P255.4 billion from its sale of RTBs to small investors in December, the largest issuance to date.

In April last year, the government also raised P181.9 billion from RTBs.

During its first 18 months in office, the Duterte administration already embarked on three RTB issuances.

External debt

Meanwhile, external debt inched up 2.6 percent to P2.211 trillion in 2017 from P2.156 trillion in 2016 partly as the peso weakened last year.

The Treasury attributed the year-on-year increase in foreign debt to “P25.2-billion net issuance for the year and the effect of currency adjustments (P8.2 billion for local currency depreciation and P20.9 billion for third-currency depreciation).”

The Philippine peso slid to 11-year low levels last year, breaching the 51:$1 mark.

The peso mostly weakened against the US dollar partly due to concerns on the current account deficit as a result of a surge in imports.

Based on the Bangko Sentral ng Pilipinas’ updated balance of payments (BOP) projections for 2017 released last month, it expects the current account to post a $100-million deficit, smaller than the previous projection of a $600-million deficit announced in June.

Economic managers had said that as the Duterte administration implements its ambitious infrastructure program alongside expectations of sustained strong economic growth, demand for imports would remain strong in the near term.

Before 2017 ended, economic managers also raised the share of foreign borrowings in this year’s financing program on the back of the government’s upcoming foray in the Chinese and Japanese debt markets.

The Cabinet-level DBCC last December raised to 26 percent the share of external borrowings in 2018 from 20 percent previously, while it kept the 80-20 ratio in favor of domestic sources from 2019 to 2022.

Finance Secretary Carlos G. Dominguez III had said that the share of foreign borrowings for this year was increased due to the upcoming global bond sale as well as the planned “panda” and “samurai” bond issuances in China and Japan, respectively.

This month, the Philippines also sold a total of $2 billion in 10-year dollar-denominated bonds at a coupon rate of 3 percent.