Debt-to-GDP ratio jumped to 14-year high in 2020

Repayments and a stronger peso slightly tempered debt accumulation in December last year, but the record recession coupled with a jump in borrowings to fight COVID-19 jacked up the share of unpaid obligations to 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—had been below the 50-percent level since 2011 and ended 2019 at a low of 39.6 percent as the economy sustained robust economic growth prepandemic.

However, the Philippines had to borrow more last year amid a pandemic-induced recession that weakened government’s revenue from taxes and fees, such that end-2020 outstanding debt amounted 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 postwar recession, amid a prolonged pandemic.

The government sourced the bulk of its borrowings locally to temper foreign exchange risks, such that outstanding domestic debt accounted 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 the strengthening of the peso to 48.021:$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.

During an Eagle Watch webinar last month, Ateneo de Manila University economics department chair Luis Dumlao pointed out that debt watchers and multilateral lenders would only be worried when a country’s debt-to-GDP breached 60 percent. —Ben O. de Vera