Philippine debt-to-GDP ratio down to 62.1% as of Q2

The size of the government’s debt relative to the economy or debt-to-gross domestic product (GDP) ratio decreased slightly as of the second quarter of the year, albeit still above the internationally accepted “manageable” threshold, data from the Bureau of the Treasury (BTr) showed.

Treasury data showed as of end-June 2022, the country’s debt-to-GDP ratio stood at 62.1%, lower than the 63.5% debt level as a percentage of GDP in the first quarter of the year.

This is still above the internationally recommended ceiling of 60% of public debt’s share to the economy.

The Marcos administration is targeting to bring down the debt-to-GDP ratio below 60% by 2025. 

In particular, President Ferdinand Marcos Jr.’s chief economic manager, Finance Secretary Benjamin Diokno said the government will no longer borrow as much as what was done during the Duterte administration. 

As of end-June, the last month in office of the Duterte administration, the national government’s debt stock amounted to P12.79 trillion, this as previous administration embarked on a borrowing spree to boost state coffers to respond to the COVID-19 pandemic —providing cash aids to vulnerable sectors, procuring vaccines to immunize the population, among others —as it implemented hard lockdowns to control the spread of the disease, causing economic activity to contract which affected state revenue collection.

Diokno said the debt-to-GDP ratio will gradually decline 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 level will be down to 52.5%.

Before the COVID-19 pandemic, the country’s debt-to-GDP ratio hit a record-low of 39.6%.

Sought for comment, Rizal Commercial Banking Corp. Michael Ricafort said the decline in the debt-to-GDP ratio in the second quarter was “partly due to still relatively faster economic/GDP growth that expanded/broadened the economic/GDP base and also effectively reduced the debt-to-GDP ratio, 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 specific period — grew by 7.4%, but slower than the 8.2% growth seen in the first quarter as inflation slowed down economic activity. 

Union Bank chief economist Ruben Carlo Asuncion said the lower debt-to-GDP level “reiterates the need to focus on growing the economy as an important strategy in bringing down the current high debt-to-GDP ratio.”

ING Bank senior economist Nicholas Mapa, likewise, said the lower debt-to-GDP ratio is “a welcome development as we would need this ratio to slip below 60% in the near term.”

“However, with growth expected to slow in the coming quarters due to headwinds (inflation, higher rates, etc.), it will be challenging for the government to achieve the balance of providing ample stimulus while ensuring that debt levels do not bloat to catch the attention of ratings agencies,” Mapa said.

“For as long as our debt to GDP ratio stays above 60%, we remain susceptible to ratings action from at least one of the major ratings agencies,” Mapa added.

Socioeconomic Planning Secretary Arsenio Balisacan said that inflationary pressures to growth are expected to continue in the second half of the year.

Balisacan, however, said that global headwinds and inflation are already taken into consideration in the economic managers’ target of 6.5% to 7.5% growth for the entire year.

Ricafort also said that “risk factors, including higher inflation, higher interest rates, risk of US recession could all be a drag on Philippine economic growth and, in turn, could slow down the reduction of the debt-to-GDP ratio.”

“Thus, intensified tax collections based on existing tax laws, new taxes, and higher tax rates, as well as more disciplined government spending still needed to sustain the improvement/easing in the debt-to-GDP ratio, as well as for more sustainable fiscal/debt management over the long-term and for the coming generations,” Ricafort said.

In his first State of the Nation Address, Marcos said tax administration reforms will be in place to increase revenue collection, including taxing digital service providers. —LBG, GMA News