PH debt-to-GDP ratio jumped to 14-year high of 54.5 percent in 2020

MANILA, Philippines—Repayments and a stronger peso slightly tempered debt accumulation last December, but the record recession coupled with a jump in borrowings to fight COVID-19 jacked up the share of debt in the Philippine economy to a 14-year high of 54.5 percent in 2020.

The end-2020 national government debt-to-gross domestic product (GDP) ratio was the highest since the 58.8 percent posted in 2006, Bureau of the Treasury data showed.

Debt-to-GDP—the better measure of a country’s capacity to pay its creditors—fell below the 50-percent level since 2011 and ended 2019 at a low of 39.6 percent as the economy sustained robust growth prior to the pandemic.

However, the Philippines had to borrow more in 2020 amid a pandemic-induced recession that weakened government revenues from taxes and fees, pushing end-2020 debt to P9.79 trillion.

While 3.3-percent lower than the record-high P10.13-trillion level in November 2020, the outstanding amount in December last year was 26.7-percent higher than the P7.73 trillion in end-2019.

It did not help that GDP shrank by 9.5 percent in 2020—the worst post-war recession, amid a prolonged pandemic.

The government borrowed more locally to temper foreign exchange risks, leading to outstanding domestic debt accounting for 68.4 percent of total in 2020, up from 66.3 percent in 2019.

Repayment of the P540-billion short-term borrowings from the Bangko Sentral ng Pilipinas (BSP) plus peso further strengthening to 48.021 to $1 in December resulted in the month-on-month decline, offsetting the government’s issuance of $2.75 billion in US dollar-denominated bonds and a record P6.56 billion in “premyo” bonds to small local investors.

But compared to 2019, end-2020 outstanding domestic debt jumped 30.6 percent while foreign obligations rose 19.1 percent.

For 2021, the programmed P3.03 trillion in gross borrowings would further hike the debt-to-GDP ratio to 57 percent, in the middle of the pack in Asean and among the economies with similar credit ratings as the Philippines.

At an online seminar last January, Ateneo de Manila University economics department chair Luis Dumlao pointed out that debt watchers and multilateral lenders would be worried only when a country’s debt-to-GDP breaches 60 percent.

“At 85 percent, people start to think you are in danger. We are far off from it,” Dumlao said.

Dumlao added that it also helped that he Philippines’ foreign debt remained lower—external debt was 17.2 percent of GDP in 2020, while domestic debt accounted for a bigger 37.2 percent, Treasury data showed.

On Tuesday, the Treasury continued to borrow—it sold P30 billion in reissued 10-year T-bonds at an average annual rate of 3.066 percent.

The IOUs with a remaining life of nine years and five months attracted tenders amounting to P63 billion, making the auction twice oversubscribed.

While the rate inched up due to expectations of quicker inflation in January and 2021 as a whole, National Treasurer Rosalia V. de Leon said Tuesday’s auction had “strong participation in the long end at relatively low pick-up in yields.”

Moving forward, De Leon said debt paper yields “may have “some upward adjustments in the long end, but the front end will remain with abundant liquidity and heavy bias on this segment.”

To date, this bond series had a total outstanding volume of P90 billion.

TSB