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Philippine gov’t debt crosses P13-T mark as of end-August

The Philippine government’s running debt hit a new record high in August, owing partly to the weakening of the local currency, data from the Bureau of the Treasury (BTr) on Friday showed.
The national government’s outstanding debt swelled to P13.021 trillion, up 1% from P12.89 trillion as of end-July.

The debt pile as of the end of August already accounts for about 97% of the P13.4-trillion projected outstanding debt at the end of the year.

The BTr attributed the month-on-month increase to “the net issuances of domestic securities as well as currency adjustments.”

Year-on-year, the running debt tally grew 11.8% from P11.642 trillion as of end-August 2021, while the year-to-date increment stood at 11% from P11.73 trillion as of end-December 2021.
The total debt stock as of end-August was composed mostly of domestic borrowings at 68.7% while the remaining 31.3% was sourced externally.
As of the second quarter of the year, the country’s debt-to-gross domestic product (GDP) ratio — the amount of the state’s debt relative to the size of the economy — stood at 62.1%, which is a slight improvement from 63.5% as of the first quarter, albeit still above the internationally accepted “manageable” threshold of 60%.

Finance Secretary Benjamin Diokno earlier said the Marcos administration is expected to borrow more than P1 trillion to plug the projected fiscal shortfall next year. 
However, he has said that the debt levels seen during the Duterte administration will no longer be seen in the current regime.
The previous administration embarked on a borrowing spree to boost state coffers to respond to the COVID-19 pandemic—providing cash aid to vulnerable sectors and 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 earlier said that the debt-to-GDP ratio would gradually decline to 61.8% this year, 61.3% by 2023, 60.6% by 2024, and 59.3% by 2025.

The debt level should drop to 52.5% by the time the Marcos presidency ends in 2028.
Before the pandemic, the country’s debt-to-GDP ratio hit a record low of 39.6%.
Sought for comment, Rizal Commercial Banking Corp. chief economist Michael Ricafort said that “the new administration may still need to further intensify tax revenue collections based on existing tax laws, come up with new taxes/tax reform measures, increase tax rates, among others, to further boost structural sources of government revenues.”

Ricafort added that the Marcos administration should “adopt more disciplined spending through fiscal reform measures such as right-sizing the government, anti-corruption/anti-leakage/anti-wastage measures; all of which would help further narrow the budget deficit and, in turn, slow the increment in the national government’s outstanding debt, as well as better prepare for eventual payment of the large debt incurred during the pandemic as it falls due in the future.”
According to the economist, new taxes and higher tax rates must be fair, equitable, and progressive, with a focus on those who can afford them or are in higher income brackets, in order to avoid burdening the poor, most vulnerable sectors, and/or those hardest hit by the pandemic.
“New taxes such as on digital transactions are based on principles of fairness, or the same tax treatment for online transactions as those in physical stores,” Ricafort said.
The Marcos administration is planning to impose a tax on digital transactions, which could generate P11.7 billion next year.
Domestic debt
The Treasury reported that domestic debt, which comprises almost 70% of the total debt pile, stood at P8.94 trillion, 1.3% higher than the P8.83 trillion posted as of end-July.
“For August, the increase in domestic debt resulted from the net issuance of government securities amounting to P109.43 billion and the P1.78 billion impact of local currency depreciation against the US dollar,” the BTr said, noting that the peso depreciated against the US dollar from P55.322:$1 as of end-July to P56.171 as of end-August.

Since the beginning of the year, the government’s domestic debt portfolio grew by P772.98 billion or 9.5% “due to continued reliance on domestic borrowing to lessen the impact of currency fluctuations.”
Foreign debt
External borrowings totaled P4.08 trillion as of end-August, up slightly by 0.6% from the end-July level of P4.05 trillion. 
“For August, the increment in the level of external debt was due to the impact of local currency depreciation against the US dollar, amounting to P62.24 billion,” the BTr said.
“This offsets the P26.59 billion effect of third-currency depreciation against the US dollar and net repayment amounting to P13.22 billion,” it added.
Year-to-date, the government’s external debt stock rose by P520.03 billion or 14.6% from its end-December 2021 level of P3.6 trillion, “primarily due to local-and third-currency fluctuations that increased the peso value of foreign denominated obligations.” — VBL, GMA News