Debt-to-GDP ratio remains manageable — DoF

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By Diego Gabriel C.Robles

Amid concerns over the Philippines’ bloated debt, Finance Secretary Benjamin E. Diokno has said the debt-to-gross domestic product (GDP) ratio is “not the only criterion that matters” to assess health economy.

Diokno told reporters that the country’s debt-to-GDP ratio, which stood at 63.5% at the end of March, is still manageable.

He made the statement after sharing Bloomberg’s Sovereign Debt Vulnerability Ranking, which included countries with a lower debt-to-GDP ratio than the Philippines, such as Nigeria (37.4%), Tur(43.7%) and Mexico (58.4%).

The Philippines was not on the list of 25 countries with the highest risk of default this year.

The head of the Department of Finance (DoF) said macroeconomic fundamentals, demographic prosIfThe resilience and quality of political institutions must also be considered in assessing the health of an economy.

“Fiscal and monetary authorities control. The debt-to-GDP ratio is manageable. The banking system is sound and more than adequately capitalized; [nonperforming loans]who [are] low, continues to decline. The banking sector has [built] in enough buffers,” Diokno said.

Economic managers aim to reduce the debt-to-GDP ratio to 61.8% by the end of the year. The debt-to-GDP ratio is expected to decline steadily to 61.3% by next year and reach 52.5% by 2028.

Diokno also noted that the country’s economic outlook is “bright” and that the external sector remains robust.

“[Our] gross international reserves [are] more than enough and there is a steady structural inflow of foreign currency [from] OFW remittances, BPO receipts, [and] increase in exports,” he added.

Preliminary BSP data showed the country’s gross international reserves stood at $101.983 billion at the end of June, down 3.5 percent from the record high of $105.762 billion recorded in June 2021.

Remittances from Filipino Overseas Workers (OFW) jumped 3.9% in April to $2.395 billion.

Meanwhile, exports rose 6.2% year on year to $6.310 billion in May but were offfixed by imports which increased by 31.4% per year to reach 11.989 billion dollars.

The Development Budget Coordinating Committee (DBCC) kept this year’s export growth target at 7%, but raised the import growth target to 18% from 15% previously.

The economy is expected to grow 6.5-7.5% this year and 6.5-8% per year from 2023 to 2028.

DEBT LEVELS
The national debt can return to pre-pandemic levels if there is faster growth, favorable interest rate conditions and a longer time horizon, said a researcher from the Philippine Institute for development (PIDS).

“If we assume that GDP growth, the real interest rate and the exchange rate are fixed and constant, then the only major variable over which the government has control is the primary balance,” said John Paul Corpus, research specialist overseeing the PIDS, on a PIDS webinar on Thursday.

The primary balance is the difference between a government’s revenues and its non-interest expenditures.

“The government needs to improve its primary balance, either by reducing primary spending, increasing revenue, or a combination of the two,” he said.

Nevertheless, a quick return would be difficult because “Iffiscal policy may need to continue to be conducive to supporting the country’s economic recovery, especially given the difficult global economic environment,” Corpus added.

Mr Diokno said last week that it was not “crucial” to return to the 39.6% debt-to-GDP ratio seen at the end of 2019, given the country’s experience at the height of the coronavirus pandemic. .

“We need to prioritize growth Ifrather than going back to that number,” he said.

GROWING DEBT
Outstanding national government debt fell 2.1% to 12.5 trillion pesos at the end of May.

“It may not be something to worry about for some, but it is something to worry about for ordinary people who feel its impact directly. We can only overcome debt if all sectors and stakeholders cooperate and coordinate,” said John Paolo R. Rivera, an economist at the Asian Institute of Management.

Analysts agreed that debt growth would require annual GDP growth of at least 6% over the next six years.

“Debt is expected to remain high with the borrowing and spending the government will need to do to support the mid-term recovery.flheadwinds. Thus, sustained growth will give it leeway to achieve this while balancing Ifscal caution,” said Robert Dan J. Roces, chief economist at Security Bank Corp.

Leonardo A. Lanzona, director of the Ateneo Center for Economic Research and Development, said the government should always prioritize investing in human capital over debt repayment.

“This should mean significant investments in education, housing and nutrition, which are necessary investments to get the economy back [on] its feet… Ignoring them in favor of short-term investments for economic recovery and debt repayment can force the economy further away from the initial pre-pandemic human capital stocks, putting us in a much worse position difficult in the long run,” he said.

Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said fiscal discipline was needed to reduce the debt-to-GDP ratio, which includes streamlining government spending.

“These were done by the economic teams of the three previous administrations and were successful in reducing the debt-to-GDP ratio and even led to credit rating improvements,” Ricafort said.

For senior economist Nicholas Antonio T. Mapa of ING Bank NV’s Manila branch, “the more we [debt-to-GDP] higher than 60%, the more sensitive we will be to the action of the ratings. »

“Fitch [Ratings] noted in its recent report that they were concerned about the uncertainty [of] medium-term growth prospects as well as possible challenges related to the outcome of the political response to the health crisis and the reduction of public debt Ifrm way down,” he said over email.

In February, Fitch Ratings maintained the country’s “BBB” rating, but kept the “negative” outlook because it fluncertainties related to the country’s medium-term growth and obstacles to debt reduction. A negative outlook means a downgrade is possible within the next 12-18 months.

S&P Global Ratings last confirmed the country’s ‘BBB+’ rating with a stable outlook in May 2021. Meanwhile, Moody’s last confirmed its ‘Baa2’ credit rating with a stable outlook for the Philippines in July 2020.

Sallie R. Loera