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Debt-to-GDP ratio up 44% on domestic borrowings

May 24, 2019

DOMESTIC borrowings made by the national government pushed the Philippines’ debt-to-gross domestic product (GDP) ratio higher at end-March, the Department of Finance (DoF) reported on Thursday.

National government debt as a percentage of GDP rose to 44 percent as of end-March from 42.6 percent a year ago, which the department attributed to the increase in domestic debt.

A report released earlier by the Bureau of the Treasury showed that the national government’s outstanding debt ballooned to a record-high P7.802 trillion in March.

Domestic borrowings totaling P5.196 trillion — up 6.1 percent from the previous month — accounted for the bulk of outstanding debt.

This resulted in domestic debt-to-GDP-ratio of 29.3 percent as of end-March, higher than the year-earlier’s 27.6 percent “as the government shifted to local sources of borrowing to reduce foreign-exchange risks,” the Finance department said.

In a comment, Bank of the Philippine Islands Vice President and lead economist Emilio Neri Jr. expressed concern on the impact of higher debt-to GDP ratio on the country’s credit-worthiness.

“We hope this won’t signal that we have seen a medium-term bottom for the Philippines’ debt-to-GDP ratio,” he said

“A reversal in this key indicator can have significant implications on the aspirations of the administration to get an ‘A’ rating among the major risk-rating agencies,” he added.

On the other hand, external obligations — up 2.04 percent to P2.605 trillion at end-March — translated to a debt-to-GDP ratio of 14.7 percent, lower from 14.9 percent a year ago.

However, the DoF said an alternative measure net debt-GDP ratio, which nets out the national government cash balance from the debt level, dropped to 39.2 percent from 39.6 percent.

“Net debt or debt net of cash balance is a stronger determinant of emerging country spreads than gross debt based on IMF Working Paper ‘Does Gross or Net Debt Matter More for Emerging Market Spreads?,’ Metodij Hadzi-Vaskov and Luca Antonio Ricci, December 2016,” it noted.

Meanwhile, net debt-to-revenue ratio dropped to 238.3 percent from 249.7 percent, and net debt-to-expenditure ratio fell to 203.7 percent from 214.6 percent in the period, “implying the economy’s higher capability to pay,” the department said.

It also reported that interest payments as a percentage of GDP increased slightly to 2.56 percent from 2.48 percent “due to higher interest rates as the US [Federal Reserve] ended its quantitative easing and normalized its monetary policy.”

“This led to [a] global rise in interest rates,” it said.

“In general, first-quarter 2019 debt statistics show [the] continuation of the favorable trend toward debt reduction. These favorable numbers indicate that fears of a forthcoming debt crisis are unfounded,” the department said.

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