Philippines’ debt-to-GDP ratio subsides to 60.9% as of end-2022

The level of the country’s debt stock proportionate to the size of the economy or debt-to-gross domestic product (GDP) ratio shrunk as of the of 2022, data released by the Bureau of the Treasury (BTr) on Thursday showed.

For end-2022, the Philippines’ debt-to-GDP ratio stood at 60.9%, down from the 63.7% level as of the third quarter of last year —a 17-year high or the highest since 2005. 

The debt-to-GDP ratio represents the amount of the government’s debt stock relative to the size of the economy.

Last year’ debt-to-economy level fell nearly within the internally recommended comfortable threshold of 60%.

It also exceeded the government's target of 61.8% debt-to-GDP ratio for the entire 2022 under its Medium-Term Fiscal Framework (MTFF).

“Our medium-term fiscal plan and exemplary GDP growth have allowed us to outpace our borrowings. This gives us confidence that we can reach our targets by 2025,” Finance Secretary Benjamin Diokno said in a separate statement.

In a text message, Diokno said the contraction of the debt-to-GDP ratio resulted from “the national government’s payment of its foreign debt, peso appreciation, and better than expected GDP growth rate.”

“That’s good news,” the Finance chief said.

The country’s running debt stock stood at P13.42 trillion, down by P225.31 billion or 1.7% from P13.644 trillion as of end-November amid the peso’s appreciation which reduced the local currency equivalent of foreign currency denominated borrowings as well as the maturity of some government securities.

Meanwhile, the economy as measured by GDP —total value of goods and services produced in a specific period— grew 7.6%, the highest growth rate since 1976 when the economy accelerate by 8.8%. 

In peso terms, the Philippine economy is valued at P22.02 trillion in 2022, according to the Philippine Statistics Authority.

Sought for comment, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the decline in the debt-to-GDP ratio “may have to do with faster GDP/economic growth that also increased the denominator and mathematically reduced the debt-to-GDP ratio.”

Likewise, ING Bank Manila senior economist Nicholas Antonio Mapa told GMA News Online that “the improvement in debt to gdp ratio was welcome.”

“However, the longer we stay above 60%… we will always be susceptible to a downgrade. It’s clear that the strategy for fiscal consolidation hinges on growth to hit or surpass the target,” Mapa said.

Under the administration’s MITF, the government aims to bring down the debt-to-GDP ratio to less than 60% by 2025 and further shrink it to 51.1% by 2028 as well as reduce the deficit-to-GDP ratio to 3% by 2028; and maintain high infrastructure spending at 5% to 6% of GDP annually.

Diokno said that the country’s debt management strategy prioritizes the domestic market over external sources to protect the country against foreign exchange risk as fluctuations in exchange rates run the risk of increasing debt service payments each time the peso depreciates.

Prior to the COVID-19 pandemic, the Philippines’ debt-to-GDP ratio reached a record low of 39.6% in 2019. — RSJ, GMA Integrated News