Heavy debt service burden seen for emerging markets

Emerging markets will face an immense burden to service debt that piled up while fighting COVID-19, according to the Institute of International Finance (IIF), even as Philippine officials said the country has the capa­city to repay its ballooning obligations due to solid macro fundamentals despite a pandemic.

In a Nov. 18 report titled “Global Debt Monitor: Attack of the Debt Tsunami,” the Washington-based IIF said more than $15 trillion in debt across governments, firms and households were added to the global pile year to date, such that the end-September amount hit a new high of more than $272 trillion.

“As the fiscal response to the pandemic continues, we expect global debt to hit $277 trillion by end-2020,” equivalent to 365 percent of global gross domestic product (GDP), IIF said.

“While sharp economic contractions drove surging debt ratios in many cases (notably in Lebanon), the US-dollar value of debt also rose sharply in China, Egypt, Saudi Arabia, the Philippines and Turkey over the first three quarters of 2020,” the IIF noted.

The Inquirer earlier reported that the Philippines’ debt-to-GDP ratio reached 51.2 percent as of September, the highest since 2010, as the national government’s outstanding obligations jumped 18.5 percent year-on-year to P9.37 trillion while the economy shrank by 10 percent during the first nine months of the year.

Based on the IIF’s estimates, the end-September debt of Philippine households rose to 17.2 percent of GDP from 16 percent a year ago; nonfinancial corporations, 33.1 percent from 30.1 percent; government, 45.7 percent from 37 percent, and the financial sector, 12 percent from 11.5 percent.

The IIF said it expected “rising debt service burdens for emerging markets” despite easing policy rates, which slashed governments’ borrowing costs—“a big benefit given widespread COVID-19-related revenue losses.”

“In emerging markets, however, these revenue losses have made debt service burden much more onerous—despite the benefit from lower borrowing costs,” the IIF said.

But in the case of the Philippines, Finance Undersecretary and chief economist Gil Beltran said the country was in a good position to repay its debt as “our balance-of-payments surplus is rising and the peso is stronger.”

“Our problem is the reverse—we need to revive the economy fast to use excess foreign exchange,” Beltran said.

National Treasurer Rosalia de Leon also pointed out that the Philippines had “demonstrated a good track record of managing debt, which has been recognized by credit-rating agencies with upgrades as well as both local and global investors with tightness of pricing and credit default swap” whenever the country issued bonds.

It also helped that the government had generated savings from debt servicing, which financed the P165-billion additional stimulus under the Bayanihan to Recover as One Law, De Leon added.

The latest Bureau of the Treasury data showed that the national government paid a record P1.13 trillion in debt during the first nine months as it included the P300-billion short-term borrowings repaid by the Treasury to the Bangko Sentral ng Pilipinas last September—a rollover amount, De Leon noted.

Budget documents for 2021 showed that debt service expenditures would jump from P842.5 billion last year to more than P1 trillion this year and P1.79 trillion in 2021 amid increasing domestic and foreign borrowings to fight the health and socioeconomic crises inflicted by the COVID-19 pandemic.