Drilon raises concern on Philippines’ 16-year high debt-to-GDP ratio

Senate Minority Leader Franklin Drilon on Thursday raised concern over the amount of the country’s outstanding debt relative to the size of the economy as it already breached the internationally-accepted debt threshold.

Data from the Bureau of the Treasury showed that the country’s debt-to-gross domestic product (GDP) ratio grew to 63.1% as of end-September 2021 as the national government’s outstanding debt hit P11.917 trillion during the period.

This is the highest debt-to-GDP ratio in 16 years when the outstanding debt as percentage of the economy hit 65.7% in 2005.

During the Senate deliberations of the proposed P5.024-trillion budget for 2022, Drilon said the 63.1% debt-to-GDP ratio “already breached the threshold marker that is accepted as [adequate] capacity of the economy to pay off its debts.”

“It is a cause of concern,” Drilon said.

In response, Senate Committee on Finance chairman Senator Sonny Angara, defending the 2022 proposed budget, said that “in normal times, it's 60% debt as a percentage of GDP...”

“…but in abnormal times like now, the IMF (International Monetary Fund) has revised that figure to 70%. Most countries have now breached their predicted deficit levels.”

Finance Secretary Carlos Dominguez III earlier defended the uptick in the country’s programmed debt which is expected to hit the internationally recommended threshold of 60% proportion of GDP.

“I would like to emphasize again that the increase in our debt level is only temporary. It did not stem from profligate public spending, but rather resulted from a universal shock that deteriorated the financial positions of almost all countries around the world,” Dominguez told a House budget deliberation on the proposed P5.024 trillion national budget for 2022.

Angara, during the Senate deliberations, said the debt-to-GDP ratio will be kept within the 60% range, citing the administration’s economic managers assurance.

Drilon also asked if the government will be borrowing more in the coming year.

In response, Angara said, “If your question is if we'll be borrowing next year, definitely because the government borrows every year. As GDP grows, debt also grows but we keep it at a manageable level.”

Sought for comment, Rizal Commercial Banking Corp. chief economist Michael Ricafort said “the rising trend in the country’s debt-to-GDP ratio to a 16-year high of 63.1% as of September 2021, from 54.5% as of end-2020 and from a low of 39.6% as of end-2019 (pre-pandemic) may have been largely brought about and accelerated by the COVID-19 pandemic/lockdowns in recent months.”

“It is already near the international threshold of 60% and also near the debt-to-GDP ratio of other similarly-rated countries, so it is important to curb the budget deficit and reduce additional borrowings/debt near this threshold to help sustain the country’s relatively favorable credit ratings, at 1-3 notches above the minimum investment grade,” Ricafort said.

The economist said the country’s budget deficit could narrow as the economy re-opened further from recent lockdowns and re-opened further with adoption of smaller scale or granular lockdowns with the Alert Level System since September 16, 2021.

“As a result, more businesses/industries re-opened from lockdowns, including previously restricted ones, with higher production/capacity, more sales/income, more jobs/employment, and greater business/economic activities, thereby increasing the government’s tax revenue collections from businesses, consumers, and other institutions, while also fundamentally reducing the need to spend for ayuda/financial assistance/other COVID programs with less risk of lockdowns,” Ricafort said. — RSJ, GMA News