Philippine gov't debt down to P12.5T as of end-May

The Philippine government’s running debt stock dipped as of end-May after the repayment of a cash advance from the central bank, which was tapped for steady access of funds to bankroll the requirements of reviving the pandemic-battered economy, Bureau of the Treasury (BTr) reported Friday.

Data released by the Treasury show the national government’s total outstanding debt stood at P12.495 trillion, down 2.1% or P267.415 billion lower than the P12.763 trillion debt pile as of end-April.

The decrease was attributed to the repayment of provisional advances from the Bangko Sentral ng Pilipinas (BSP), according to the BTr.

Apart from debt repayments, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the decline of the outstanding debt may be due to “no large borrowings usually during the election month and, accordingly, some frontloading of government borrowings before the May 2022 elections, as a matter of prudence and policy in view of some election-related restrictions and consistently also preventing government debt maturities during the presidential election month, a pattern also seen for many years.”

“Furthermore, increased government tax revenue collections and slower growth in government spending as the economy re-opened further towards greater normalcy that reduced lockdown-related spending by the government as well as some election-related restrictions/ban on some government spending such as on some public works during the election period also led to narrower budget deficit and correspondingly reduced the need for more government borrowing in May 2022,” Ricafort said.

Accordingly, the government’s fiscal position stood at a deficit of P146.8 billion in May, a reversal from a P4.9-billion surplus in April but narrower by 26.72% than the P200.3-billion budget shortfall in May 2021.

While government revenues grew by a double-digit of 18.9% to P304.9 billion during the period, it was still outpaced by state spending amounting to P451.7 billion, up 1.10%.

Of the total debt stock, 30.7% was sourced externally while the lion’s share of 69.3% was sourced locally.

In particular, domestic debt totaled P8.66 trillion, down 3% from P8.93 trillion as of end-April.

“This resulted from the P300.00 billion repayment to the BSP which was partially tempered by the net issuance of government securities,” the Treasury said.

The Department of Finance (DOF) earlier said it paid in full its P300-billion loan from the BSP, ahead of its actual maturity date of June 11.

The cash advance from the central bank “enabled the government steady access to cash for the uninterrupted delivery of large fiscal response and recovery measures despite the lower  revenue collections and disruptions to financial markets experienced throughout the last two years,” it said.

External debt, meanwhile, stood at P3.83 trillion, up 0.1% from P3.827 trillion as of end-April.

“For May, the increment in external debt was attributed to the impact of local1 and foreign currency fluctuations against the US dollar amounting to an additional P5.63 billion and P9.41 billion, respectively,” the Treasury said, noting that the peso depreciated against the dollar from P52.335:$1 as of end-April 2022 to P52.412:$1 as of end-May 2022.

“These more than offset the effects of net repayment of external obligations amounting to P12.05 billion,” it added.

Debt-to-GDP ratio

As of the first quarter of the year, the country’s debt-to-gross domestic product (GDP) ratio — the size of the state’s debt relative to the size of the economy — stood at 63.5%, its highest in 17 years and well over the internationally recommended threshold of 60% of the economy.

Now, the task of managing the country’s fiscal position will be in the hands of President Ferdinand Marcos Jr., who was sworn in on June 30, and his economic team lead by Finance Secretary Benjamin Diokno, the former governor of the BSP under the Duterte administration.

The previous is projected to incur P3.2 trillion in additional debt following the COVID-19 pandemic, which could bring the debt level to reach P13.1 trillion by the end of 2022, above the original plan of only around P9.9 trillion.

“In view of the 17-year high debt-to-GDP ratio of 63.5% as of first quarter 2022 and the need to bring it down to below the international threshold of 60% in the coming years to prevent a credit rating downgrade, the new administration needs to further increase tax revenue collections from existing tax laws, or even come up with new taxes or even higher tax rates, in able to help pay the total of P5 trillion increase in outstanding debt since the pandemic started in 2022,” Ricafort said.

Fiscal consolidation plan

Duterte’s DOF chief Carlos Dominguez III unveiled a fiscal consolidation plan aimed at raising an average P284 billion annually for the next 10 years to pay the historic P3.2 trillion additional debt incurred due to the COVID-19 pandemic.

But the fiscal consolidation plan involves implementing new taxes, deferring personal income tax reductions, and expanding the value added tax base.

Diokno, however, said that he is fine with the last two tax reform packages to be left by the Duterte administration, namely the tax packages on real property valuation and passive income and financial taxes.

“Other than that, we should stop first looking at tax reform… we are happy with the present tax structure,” Diokno said. —KBK, GMA News