Amid COVID-19 borrowing, gov’t debt swells to record P8.891T as of end-May

The national government’s outstanding debt ballooned to a record high of P8.891 trillion as of end-May as the state ramped up its borrowing efforts to support COVID-19 response efforts, data released by the Bureau of the Treasury (BTr) showed Tuesday.

The end-May outstanding government debt is 12.3% or P975.216 billion higher compared to P7.915 trillion debt level recorded in May last year. It is also 3.4% or P290.44 billion higher than end-April’s P8.6 trillion.

The Treasury attributed the widening of government debt to “increased reliance on government securities issuance and external loan availments to fund COVID-19 response amid a sharp drop in revenue collections.”

As of June 11, the Philippine government has raised a total of $6.4 billion (more than P300 billion) from loans extended by the World Bank, AIIB, and the Asian Development Bank (ADB) as well as the recent dual-tranche issuance of US dollar-denominated global bonds, according to President Rodrigo Duterte’s report to Congress last week.

The Department of Finance has bared plans to raised around P436 billion in foreign loans to support COVID-19 response and recovery efforts. 

Of the total outstanding debt, 68% was sourced locally while 32% was borrowed externally.

Sought for comment, Rizal Commercial Banking Corporation chief economist Michael Ricafort said that despite the increasing debt, the government's fiscal position has improved over the years, “as attested by the relatively low debt-to-GDP ratio compared to similarly-rated countries.”

The cost of liabilities relative to the size of the economy remained at a manageable level of 41.8% as of the first quarter. 

A lower debt-to-GDP ratio is generally seen as favorable, as it indicates that the country is able to repay its debts.

Economic managers have projected that revenue collection this year will be lower at 13.6% of the gross domestic product (GDP) at P2.61 trillion compared to expected spending level at P4.18 trillion or 21.7% of GDP due to the economic fallout resulting from the health crisis.

This led to a projected increased deficit level at P1.56 trillion or 8.1% of GDP, higher than the earlier assumed 5.3% in March. To finance the deficit, economic managers see an increase in borrowing which will be around 50% of GDP.

The World Bank said that a debt level equivalent to half of the size of the economy is still a safe or manageable level for the Philippines as the government intends to increase debt level to augment funds for COVID-19 response and recovery efforts.

“Amid various fiscal reform measures such as structurally increasing new sources of tax revenues as well as increasing recurring sources of tax revenues such as the series of increases in sin taxes in recent years, among other tax reform measures and better tax collection efforts, alongside with plugging unnecessary leakages in government spending through improved anti-corruption/governance standards,” Ricafort said.

Domestic debt amounted to P6.034 trillion, up P170.52 billion or 2.9% from P5.863 trillion in end-April.

The BTr said the increase in domestic borrowing was primarily due to the net issuance of domestic government securities.

External debt, meanwhile, stood at P2.856 trillion, up 4.4% from the previous month’s level.

“For May, net availment of external loans amounted to P114.01 billion as part of continued government efforts to secure financing for COVID-19 response while local currency’s depreciation added P7.65 billion to the peso value of external obligations,” the Treasury said.

“On the other hand, third currency adjustments trimmed P1.74 billion. From the start of the year, NG external debt has increased by P253.02 billion or 9.7%,” it added. — BM, GMA News