Gov’t debt servicing declines further in July

MANILA, Philippines - The amount spent by the government for debt servicing continued to decline in July as payment for principal debt significantly dropped.

Latest data from the Department of Finance showed that the government spent P50.4 billion in July to pay off a portion of its debt, down 25.6 percent from P67.8 billion in the same month a year ago.

The decrease was  observed given the Aquino administration’s continuing efforts to sustain the decline in the share of debt servicing in the national budget to provide more fiscal space for key vital expenditures such as infrastructure and social services. 

From January to July, the government settled P277.93 billion or 27.6 percent lower than the P384.1 billion recorded in the same period last year.

Total principal payments reached P69.97 billion during the seven month period, 60 percent less than the P173.55 billion settled last year.

The government also paid P207.96 billion in interest, slightly lower than the P210.6 billion posted the previous year.

Debt servicing, which used to eat  a third of the nation’s budget,  is seen to continue to sustain  its downward trend  as a percentage of state expenditure and is seen to go down to only 12 percent by 2016 when President Aquino steps down from office.

From 22 percent in 2010, the share of interest payments to the national budget was estimated to have dropped to 16.6 percent last year.  For 2014,  the share is expected to decline further to 15.6 percent.

Principal debts are paid using proceeds of loans secured by the government.

Finance officials said debt-management strategies coupled with efforts to shore up tax collections, have allowed the government to significantly trim its debt burden to a more manageable level.

Under this year’s national budget, the government has set aside P352.65 billion to pay for interest on its outstanding debt.  The amount, which accounts for 15.6 percent of the state’s 2014 budget of P2.265-trillion, represents a decline in the proportion of the budget earmarked for debt servicing.

Budget Secretary Florencio “Butch” Abad said the government is shelling out more investments to improve and upgrade infrastructure to be at par with its Asian neighbors.

The country borrows from the international and domestic market to supplement revenues and finance development programs. 

The country’s outstanding debt stood at P5.66 trillion as of May, up five percent from the same month a year ago.  Domestic debts accounted for 66 percent of the total with external obligations making up the balance. 

The government aims to further reduce the ratio of its debt to gross domestic product to 45.6 percent next year through improved revenue collections and better management of funds.

The debt-to-GDP ratio, which peaked at 78.1 percent during the Asian currency crisis, stood at  49.2 percent in 2013 from 51.5 percent a year earlier.

The debt-to-GDP ratio, one of the key indicators closely watched by major international credit rating agencies, is a measure of the government’s capacity to settle its obligations.

It has been on a declining trend since President Aquino assumed office in 2010.

This continuing trend of decreasing general government debt-to-GDP ratio shows government’s efforts to ensure sustained fiscal space throughout the medium term.