Gov’t debt to breach P8T in 2019

The national government’s outstanding debt is expected to exceed the P8-trillion level next year as the Duterte administration ramps up borrowings to finance its ambitious infrastructure program.

The Department of Budget and Management projected that the outstanding debt of the national government would hit P7.33 trillion by the end of this year, up from P6.65 trillion as of end-2017.

This year, P1.26 trillion in additional borrowings on top of P709.8 billion in principal payments will further expand the debt stock.

Outstanding domestic debt will reach P4.77 trillion by end-2018, while foreign obligations will amount to P2.56 trillion.

Next year, the national government’s outstanding debt will further climb to P8.12 trillion, with P1.9 trillion in additional borrowings as well as P1.14 trillion in principal payments programmed for 2019.

By end-2019, the outstanding domestic obligations will increase to P5.39 trillion, while external debt will rise to P2.72 trillion.

Meanwhile, with a weaker peso and the retail treasury bond (RTB) sale last June, the national government’s outstanding obligations breached the P7-trillion mark last month, the latest Bureau of the Treasury data showed.

In a statement released Friday night, the Treasury said that the outstanding debt stock amounted to P7.02 trillion as of end-June, up 2.7 percent from P6.83 trillion a month ago and 9.3-percent higher than the P6.42 trillion a year ago.

As of June, outstanding domestic debt hit P4.58 trillion, accounting for the bulk or 65.3 percent of total obligations.

Local obligations rose 3.5 percent month-on-month and 9.4 percent year-on-year.

The Treasury blamed the month-on-month increase in local debt to “the net issuance of government securities amounting to P154.32 billion and peso depreciation that increased the value of onshore dollar bonds by P430 million.”

To recall, the government issued P121.8 billion in RTBs to small investors last June.

During its 21st RTB sale—also in the fourth under the Duterte administration’s first two years in office, the government sold three-year IOUs at 4.875 percent.

Also, the peso weakened to 53.404:$1 as of end-June from 52.554 in May, the Treasury noted.

Foreign debt, meanwhile, reached P2.44 trillion, up 1.2 percent month-on-month and 9.3-percent larger year-on-year.

“The [month-on-month] increment in external debt was due to the weaker peso that increased the peso value of foreign exchange debt by P38.95 billion. This was partially offset by external loan net repayments amounting to P1.58 billion and the impact of net depreciation on third currency-denominated debt amounting to P8.5 billion,” the Treasury explained.

Despite the rising nominal value of debt, economic managers insist that these levels remain manageable when measured against the growing economy.

“Those who raise the specter of a debt crisis arising from our use of official development assistance (ODA) to finance our infrastructure program are not reading the numbers well enough,” Finance Secretary Carlos G. Dominguez III said during the “Tatak ng Pagbabago: Tatak ng Pag-Unlad” Pre-State of the Nation Address (Sona) Forum of the Cabinet’s Economic Development Cluster early this month.

“The debt-to-GDP (gross domestic product) ratio held steady at 42.1 percent in 2017, same rate as in 2016. We continue to prudently manage our obligations and we are confident that the rapid expansion of the domestic economy will enable us to decrease our debt further to 39 percent of GDP in 2022,” according to Dominguez.

The government targets yearly GDP growth of 7-8 percent starting this year until 2022. The GDP grew 6.8 percent in the first quarter, below the full-year goal but still among the fastest in the region.

Last week, Budget Secretary Benjamin Diokno reiterated that “the right metric is not the size of debt itself, but the size of debt to GDP.”

“Our debt-to-GDP is about 40 percent and declining. We expect that by the end of our term, it will be 38-39 percent—we’re in good shape. If you have a debt-to-GDP ratio of 60 percent or lower, you’re in good shape. Japan’s ratio is 200 percent; the US has more than 100 percent,” Diokno noted.