Debt-to-GDP ratio expected to fall below 60% before 2025

Finance Secretary Benjamin Diokno said over the weekend the implementation of prudential measures would help bring down the government’s debt-to-GDP ratio below 60 percent.

The debt-to-GDP ratio calculates the country’s public debt as a percentage of its gross domestic product. It allows finance managers to determine the capacity of a country to settle its debt, including principal amortization and interest payments.

Diokno said in a statement reducing the debt-to-GDP ratio to less than 60 percent is possible through fiscal consolidation, prioritization of quality spending, prudential borrowing and effective management of the Maharlika Investment Fund.

He said the latest numbers showed that as of the first semester of 2023, the debt-to-GDP ratio stood at 61 percent, lower than the full-year target of 61.4 percent.

“The economic team will ensure that the debt-to-GDP ratio will be below 60 percent by 2025, if not earlier, through the following measures: adherence to the fiscal consolidation program of reducing the deficit gradually from 6.1 percent this year to 5.1 percent next year and 4.1 percent in 2025 to slow down the accumulation of debt,” he said.

He said the government could further narrow the deficit by passing new revenue measures such as those proposed by the Finance Department, including the additional taxation on sugar-sweetened beverages and salty products such as junk foods.

Diokno said the continuous support to rapid economic development through the budget would also help by prioritizing quality spending such as investments in human capital development and modernization of public infrastructure.

“The contribution of these investments is not limited to the government’s direct participation in the economy, but also because improving our human and physical capital are likely to improve our chances of attracting foreign capital,” he said.

Another thing is the prudent way of borrowing, mostly in domestic currency and comfortable tenor. He said maintaining a resilient debt profile with 70 percent to 75 percent of debt in peso and having average portfolio maturities of 7 to 10 years would help reduce the vulnerability of debt service and debt valuation to external shocks, which in turn boosts investor confidence in credit, keeping the borrowing rates competitive.

Diokno also mentioned the full operation and effective management of the Maharlika Investment Fund, which was intended to accelerate the implementation of investment programs without the downside of adding to the deficit (beyond national government’s share in initial capitalization).

“An aggressive and well-managed Maharlika will help grow our GDP and reduce the pressure on the government to support growth through the budget,” Diokno said.

He said the government was on track to meeting the targets set in the Medium Term Fiscal Program.

Data showed that in the first semester of 2023, revenues grew by 7.7 percent, exceeding the target of P1.8 trillion for the period by 2.7 percent or by P49.2 billion.

Diokno said this was attributed to higher collections by the Bureau of Customs because of higher crude oil price, improved valuation and the agency’s digitalization efforts. The over-performance on non-tax revenue was due to higher than programmed Treasury income and other non-tax collections, he said.

Revenue as a percentage of GDP was 0.54 percentage points lower in the first half of 2023, compared to the same period in 2022 due to the cash-flow impact of the shift in value-added tax payments from monthly to quarterly and the second tranche reduction in personal income tax rates in the amount of P74 billion, according to the DOF.

The revenue-to-GDP ratio for the first semester of 2023 was 16.2 percent, above the full-year 2023 target of 15.2 percent.

Diokno said the tax-to-GDP ratio reached 14.4 percent in the first half, in line with the full-year target of 14.4 percent. — Julito G. Rada