The level of government debt-to-economy, or debt-to-gross domestic product (GDP) ratio, declined slightly in the second quarter of the year but is still above the internationally recognized “manageable” threshold, Bureau of the Treasury (BTr) data shows showed.
Data from the Ministry of Finance showed that the country’s debt-to-GDP ratio stood at 62.1% at the end of June 2022, below the debt-to-GDP ratio of 63.5% in the first quarter of the year.
This is still above the internationally recommended 60% ceiling on the share of public debt in the economy.
The Marcos government has set itself the goal of reducing the debt ratio to below 60% of GDP by 2025.
Notably, Treasury Secretary Benjamin Diokno, President Ferdinand Marcos Jr.’s chief economic manager, said the government will not borrow as much as it did during the Duterte administration.
At the end of June, the last month in office of the Duterte administration, the national government’s debt stood at 12.79 trillion pesos as the previous administration launched a borrowing spree to replenish the coffers in response to the COVID-19 pandemic – providing cash aid to vulnerable sectors, procuring vaccines to immunize the population, among others – as it imposed strict lockdowns to curb the spread of the disease, leading to a drop in economic activity that hurt government revenue collection.
Diokno said the debt ratio will gradually decrease to 61.8% this year, 61.3% by 2023, 60.6% by 2024 and 59.3% by 2025.
By the end of the Marcos administration in 2028, the debt ratio will have fallen to 52.5%.
Before the COVID-19 pandemic, the country’s debt ratio hit a record low of 39.6%.
Rizal Commercial Banking Corp., asked for comment Michael Ricafort said the decline in debt to GDP ratio in the second quarter was “due in part to the still relatively faster economic/GDP growth, which is widening/broadening the economic/GDP base and also effectively the ratio of debt reduced to GDP as seen in previous economic cycles.”
In the second quarter of 2022, the Philippine economy, as measured by GDP — the total value of goods and services produced in a given period — grew 7.4%, but slower than the 8.2% growth in the first quarter as inflation weighed on the economy slowed activity.
Union Bank chief economist Ruben Carlo Asuncion said the lower level of debt-to-GDP ratio “reaffirms the need to focus on growing the economy as a key strategy to bring down the currently high debt-to-GDP ratio.” .
ING Bank chief economist Nicholas Mapa also said the lower debt-to-GDP ratio was “a welcome development as that ratio needs to fall below 60% in the short term.”
“However, with headwinds (inflation, higher interest rates, etc.) expected to slow growth in the coming quarters, it will be difficult for the government to strike the balance between providing comprehensive stimulus while ensuring that debt levels do not the attention of rating agencies will be inflated,” said Mapa.
“As long as our debt-to-GDP ratio remains above 60%, we remain vulnerable to rating action by at least one of the major rating agencies,” Mapa added.
Socio-Economic Planning Minister Arsenio Balisacan said inflationary growth pressures are expected to persist in the second half of the year.
However, Balisacan said global headwinds and inflation are already factored into economic managers’ target of 6.5% to 7.5% growth for the full year.
Ricafort also said that “risk factors, including higher inflation, higher interest rates and the risk of a US recession, could all weigh on Philippine economic growth and in turn slow the decline in the debt-to-GDP ratio.”
“Therefore, even more intensive tax collections based on existing tax laws, new taxes and higher tax rates, as well as more disciplined government spending are needed to sustain the improvement/easing of the debt-to-GDP ratio and make more sustainable tax/debt management in the long term and for generations to come ‘ said Ricafort.
In his first State of the Union address, Marcos said there would be tax administration reforms to increase revenue collection, including taxing digital service providers. – LBG, GMA News