DOF: Economic reforms in past 30 years reversed PH debt

Declining foreign debt as a share of the growing economy placed the Philippines at a better position than most of its Asean peers, thanks to economic reforms implemented during the past 30 years, the Department of Finance (DOF) said Wednesday.

In an economic bulletin, DOF Undersecretary and chief economist Gil S. Beltran said “the Philippines emerged from being a highly-indebted developing country in the 1980s to become one of the fastest-growing emerging economies with debt ratios lower than its Asian neighbors.”

Citing the latest World Bank data, Beltran said the Philippines’ external debt-to-gross domestic product (GDP) ratio further declined to 20.4 percent as of end-June from 21.9 percent in 2017, 23.3 percent in 2016, and 25.2 percent in 2015.

To compare, Thailand’s external debt-to-GDP ratio was a higher 31.7 percent at end-June; Indonesia’s ratio was 37.5 percent at end-2017; Malaysia’s was 74 percent in 2017; and Vietnam had a ratio of 44.8 percent as of last year.

But the share of foreign debt to GDP in China and India were lower than the Philippines’ ratio—14.5 percent at end-2017 and 17.4 percent as of June, respectively.

“The average for the seven major Asian countries is 26.8 percent, which is more than 30-percent higher than the Philippines’ [external debt-to-GDP ratio],” Beltran noted.

Also, foreign debt’s share to exports of goods and services dropped to 47.9 percent in June this year from 324.8 percent in 1985, Beltran said.

“From 64.6 percent of exports of goods and services in 1985, the country’s external debt service declined to 6.2 percent during the first half of 2018,” Beltran added.

The Philippines’ ratio of external debt service to total merchandise and services exports also declined to 6.2 percent last year from 7 percent in 2016, although higher than the 5.6 percent posted in 2015.

Citing the latest Asian Development Bank data, Beltran said the Philippines’ debt service ratio in 2017 was half of the Asian average of 12.5 percent and below Indonesia’s 25.5 percent, Malaysia’s 13.9 percent, as well as India’s 7.9 percent.

“The reversal of the country’s debt position did not come overnight. It was a product of three decades of economic reforms, including fiscal consolidation, prudent economic management, debt management, shift toward market-determined exchange rate, and export and investment-friendly regime,” according to Beltran.

“The country reduced the fiscal deficit by increasing the tax effort from 10.1 percent in 1990 to 14.2 percent in 2017 and reining in on expenditures so that the targeted deficits averaging 2.1 percent of GDP for almost three decades are attained,” he also said.

“Major infrastructure projects were subjected to economic evaluation so that only projects that matched or exceeded the EIRR benchmark rate of 15 percent was implemented and those priority projects that failed to reach the benchmark used ODAs [official development assistance] with softer terms.”

“The country reduced debt service through debt rescheduling initially, and later, debt conversion and debt exchanges, shifted to domestic borrowing to reduce forex risk exposure as domestic savings rose and domestic capital markets grew, and focused on longer debt maturities,” Beltran explained.

Further, Beltran noted that “the Bangko Sentral ng Pilipinas shifted to a market-determined exchange rate to ensure competitiveness and relieve pressure on the balance of payments” while the investment incentives regime “was enhanced to remove bias against exports through reduced tariff rates and tariffication of quantitative restrictions” during the last 30 years.  /kga