PH debt-to-GDP ratio jumps to 16-year high

As the economy again contracted while obligations surged to new highs, the Philippines’ debt-to-gross domestic product ratio (GDP) ratio jumped to 60.4 percent in the first quarter, slightly above the internationally recommended 60-percent threshold, which multilateral lenders and credit-rating agencies considered as manageable debt levels.

The latest Bureau of the Treasury data showed that domestic debt-to-GDP climbed to 43.4 percent in March from 37.3 percent as of end-2020. External debt-to-GDP ratio slightly declined to 17 percent in the first quarter from 17.3 percent at the end of last year.

The national government’s outstanding debt hit a new high of P10.77 trillion in March.

The Philippines’ GDP shrank by 4.2 percent year-on-year in the first quarter, as the value of goods and services produced in the country fell to P4.35 trillion from P4.45 trillion a year ago. The Development Budget Coordination Committee had estimated nominal GDP to hit P19.98 trillion by end-2021 if the economy would grow by 6.5 to 7.5 percent.

Treasury data showed the first-quarter debt-to-GDP level was the highest in 16 years or since the 65.7 percent recorded in 2005.

Due to fiscal prudence across several administrations, the Philippines’ debt-to-GDP—a measure of an economy’s capability to settle its obligations—gradually declined from as high as 71.6 percent in 2004 to a record low of 39.6 percent in 2019.

But as the COVID-19 crisis weakened revenue collections, the government ramped up borrowings last year such that debt-to-GDP rose to a 14-year high of 54.5 percent in end-2020.

The Institute of International Finance said the Philippines and other emerging markets might be burdened with bigger debt servicing as a result of higher expenditures to fight COVID-19 and weaker revenues.

In a May 11 report, Singapore-based United Overseas Bank noted that the DBCC had programmed the national government’s outstanding obligation to end 2021 at 57.8 percent of GDP, or a debt stock of P11.5 trillion.

The government is set to borrow P3.03 trillion this year, of which 85 percent or P2.58 trillion will come from the local debt market

UOB said the Philippines’ public debt was “deemed financeable given the country’s big domestic savings pool (IMF estimate: 20.6 percent of GDP in 2020, 25.3 percent in 2019, 19.7 percent in 2000s, and 18.5 percent in 1990s) boosted by remittances, business process outsourcing earnings, and decent GDP growth of 6.4 percent on average over the pre-pandemic 10 years.”

“The debt portfolio also reflects minimal exposure to interest rate volatility as just 10 percent of the debt stock is subject to rate refixing. The tax-to-GDP ratio remained stable at 14 percent in 2020 … suggesting still strong ability to generate revenue for servicing the national debt,” UOB economist Jasrine Loke said in a report.