World Bank: 50% debt-to-GDP still a safe number for Philippines

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, Washington-based World Bank said Tuesday.

In a virtual press conference, World Bank senior economist in the Philippines Rong Quian said that a 50% debt-to-gross domestic product (GDP) is “still a good, safe number.”

Economic managers projected that revenue collection this year will be lower at 13.6% of 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.

At 50% debt-to-GDP level, Qian said the Philippine government can still borrow from the World Bank and other international institutions, “thanks to the strong macroeconomic fundamentals.”

“They (the Philippines) are one of the few in the region that have very low public external debt... so in terms of space, can borrow a little bit more,” she said.

So far, the government has raised a total of $3.95 billion or roughly P197.5 billion from loans extended by the Asian Development Bank ($2.1 billion), World Bank ($1.1 billion), and Asian Infrastructure Investment Bank ($750 million).

Qian said multilateral lenders, such as the World Bank, “recognized that this pandemic is once in a lifetime and every country in the world is borrowing to cope with this unexpected event.”

“Investors will look at macroeconomic fundamentals,” she added.

The Philippine total outstanding debt widened to a record-high P8.6 trillion as of end-April.

Despite the increasing government debt, 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. --KBK, GMA News