Infra buildup seen jacking up debts

The ambitious “Build, Build, Build” is seen further jacking up the government’s already record-high debt stock in the near term but the long-term impact of improved infrastructure will eventually outweigh the cost of rolling them out, the Department of Finance said.

In an economic bulletin, the DOF noted that the government’s outstanding debt jumped 9.2 percent to P6.7 trillion in 2017 due to the “surge in domestic debt following the issuance of retail treasury bonds (RTBs) in the last quarter of 2017.”

The government sold P255.4 billion worth of five-year RTBs in December, the biggest issuance to date.

DOF officials had said proceeds from the RTB sale would be used to finance the infrastructure rollout under “Build, build, build.”

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

In the first 18 months of its term, the Duterte administration made three RTB issuances.

The DOF nonetheless said “despite the rise in the debt stock, its proportion to GDP [gross domestic product] has been maintained at 42.1 percent as nominal GDP also surged by 9.1 percent.”

Finance Undersecretary and DOF chief economist Gil S. Beltran earlier said the share of outstanding government debt to the economy last year remained the lowest since 1980.

The ratio has declined from 51.5 percent in 2012, 49.2 percent in 2013, 45.4 percent in 2014, 44.7 percent in 2015 and 42.1 percent in 2016, Bureau of the Treasury data showed.

“From a high of nearly 75 percent in 2004, the debt-to-GDP ratio was drastically reduced to below 45 percent, owing to prudent debt management, fiscal discipline, and economic growth,” the DOF noted.

The debt-to-GDP ratio measures the capacity of an economy to pay ITS debts.

But the DOF admitted that “in the short-term, the government’s ’Build, Build, Build’ program may exert upward pressure on the debt stock.”

Economic managers said the program would be financed by foreign borrowings (official development assistance (ODA) and loans) and the additional revenues to be generated by the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

Still, the DOF maintained that “in the medium- to long-term, a sustainable high economic growth rate brought about by better infrastructure will outrun the growth of debt.”

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