Gov’t sees further decline in debt-to-GDP ratio this year

THE PHILIPPINE government’s debt-to-gross domestic product ratio, an indicator of a country’s creditworthiness, is expected to drop further this year and hit the international benchmark for investment grade of just 40 percent.
“It is almost certain that the 40 percent will be hit this year,” Deputy National Treasurer Eduardo Mendiola told reporters Monday.

The government’s debt-to-GDP ratio hit 50 percent in 2011. The ratio has been declining steadily from 84 percent in 2004, when the country was said to be on the brink of a fiscal crisis.

Mendiola said administrative reforms that enhanced collection of taxes and other revenues, and the prudent management of liabilities had helped trim the debt-to-GDP ratio.

Reaching a 40-percent debt-to-GDP ratio is one of the objectives of the government’s fiscal managers. It is in line with the country’s goal of getting an investment grade credit rating.

Analysts said most countries that enjoy investment grade had debt-to-GDP ratios of 40 percent or lower.

Mendiola said the Philippines’ method of computing its debts—which included the bond sinking fund (BSF)—was actually conservative.

BSF is a pool of savings by the government that is reserved for the servicing of long-term debts in case the government suffers liquidity problems by the time the debts fall due.

He said that if the BSF was excluded from the computation, the debt-to-GDP ratio would already be 40 percent by now.

“Therefore, by the time we (Philippines) declare that our debt-to-GDP ratio is already 40 percent, the figure will actually be lower,” the treasury official said.

The outstanding debt of the government hit P5.15 trillion as of the end of May, data from the Bureau of the Treasury showed.

The Philippines is one to two notches below investment grade. The country’s economic managers are keen on getting an investment grade for the country, believing that the upgrade will lead to a surge in job-generating foreign direct investments.

Currently, despite its sustained economic growth and improving fiscal condition, the Philippines still lags behind its neighbors in terms of FDI inflows.

The Philippines is rated one notch below investment grade by Fitch Ratings and Standard & Poor’s, and two notches below the same by Moody’s Investors Service.