PH debt-to-GDP up in Q1 as domestic borrowings rise

MANILA, Philippines – The share of government debt to the economy rose to 44 percent at the end of the first quarter as the increase in domestic borrowings outpaced the four-year low economic growth.

The national government debt-to-gross domestic product (GDP) ratio at end-March increased from 42.6 percent a year ago, Department of Finance (DOF) Undersecretary and chief economist Gil S. Beltran said in an economic bulletin Thursday.

“External debt [share to GDP] dropped from 14.9 percent to 14.7 percent, while domestic debt rose from 27.6 percent to 29.3 percent as the government shifted to local sources of borrowing to reduce foreign exchange risks,” Beltran said.

For 2019, the borrowing mix is 76-percent domestic, 24-percent external.

In the first quarter, GDP growth declined to a four-year low of 5.6 percent mainly as the government underspent on public goods and services due to the impasse in Congress on the P3.7-trillion 2019 national budget.

Using an alternative measure called net debt-to-GDP ratio, which nets out the national government’s cash balance from the debt level, Beltran said net debt’s share to the economy declined to 39.2 percent as of March from 39.6 percent last year.

Beltran said “net debt or debt net of cash balance is a stronger determinant of emerging country spreads than gross debt,” citing a working paper of the Washington-based International Monetary Fund (IMF) published in 2016,

“Proactive debt management has afforded the Philippines an expanded fiscal space as the level of debt has declined significantly from 87.2 percent of GDP in 2006 to 41.8 percent in 2018—a 45.4-percentage point decline. Net debt shows a bigger decline from 84.8 percent of GDP to 37 percent—a 47.8-percentage point decline,” Beltran said.

For Beltran, “first-quarter 2019 debt statistics show a continuation of the favorable trend toward debt reduction.”

“These favorable numbers indicate that fears of a forthcoming debt crisis are unfounded,” he said.

Also, “net debt-to-revenue ratio dropped from 249.7 percent to 238.3 percent and net debt-to-expenditure ratio, from 214.6 percent to 203.7 percent, implying the economy’s higher capability to pay,” he added.

In 2018, the full-year debt-to-GDP ratio stood at 41.9 percent, and the Cabinet-level, interagency Development Budget Coordination Committee (DBCC) expects the share to remain at the same level this year.

As global interest rates rose after the US Federal Reserve ended quantitative easing and normalized its monetary policy, Beltran said the share of the national government’s interest payments to GDP inched up to 2.56 percent during the first three months from a year ago’s 2.48 percent.

“As percentage of revenues, interest payments dropped from 15.68 percent to 15.67 percent, and as percentage of expenditures, rose from 12.59 percent to 13.85 percent as a result of the delayed approval of the General Appropriations Act,” Beltran said.

“Debt service as percentage of GDP, expenditures and revenues all rose due to higher interest rates. Debt service-to-GDP rose from 5.06 percent to 5.23 percent; debt service-to-expenditures, from 25.67 percent to 28.3 percent; and debt service-to-revenue, from 31.98 percent to 32.01 percent,” the DOF official said.