Households and businesses in the Philippines continued to shy away from borrowing in the third quarter amid the prolonged COVID-19 pandemic.
However, economists believe that with the gradual recovery of the economy, borrowings by the risk-averse private sector will soon start rising to augment savings and restart businesses. The latest global debt monitor report of the Washington-based Institute of International Finance (IIF) showed that as the government borrowed more for its COVID-19 war chest, public debt as a share of gross domestic product (GDP) jumped to 57.4 percent at the end of the third quarter from 47.9 percent a year ago.
The IIF noted that across emerging markets like the Philippines, more than 95 percent of the debt accumulated since end-2019 were in their respective local currencies.
The Philippines relies heavily on the domestic debt market for its financing requirements, with 81 percent of this year’s borrowings to be sourced locally through treasury bill and bond issuances.
Meanwhile, the share of debt across private sectors to the Philippine economy declined in the third quarter: household debt-to-GDP eased to 16.2 percent from 16.4 percent a year ago; nonfinancial corporations’ debt ratio went down to 32.8 percent from 32.9 percent, and the financial sector’s debt was down to 11.2 percent of GDP from 11.5 percent last year.
“This was to be expected—the adjustments made by households and corporates during the pandemic were on the spending side (contraction in spending and investment) while the government had to plug the hole in economic activity via deficit spending,” ING Philippines senior economist Nicholas Mapa said.
The government’s budget deficit swelled to 8.3 percent of GDP as of end-September from 6.9 percent a year ago. Security Bank chief economist Robert Dan Roces also pointed to risk aversion among both borrowers and lenders.
“If households’ and corporates’ debt are down, it could mean access to debt is tight. Or it’s just prudence on the private sector’s part on the back of a still uncertain environment,” Roces said.
Bank lending shrank for eight straight months since December last year before reverting to year-on-year growth in August and September.
Mapa and Roces both expect borrowings to pick up alongside the further economic reopening.
“It’s still largely base-effect driven after the [GDP] contraction last year,” Mapa said, adding that “revenge spending” could ramp up economic growth “but not likely to sustain pace as households rebuild savings.”