Record-low debt level in 6 years

MANILA, Philippines - Despite plans for a higher budget deficit, the national government’s debt pile is projected to fall to record-low levels by the end of the Duterte administration, officials said yesterday.

“This is because the growth rate of our economy will be much faster than the growth of our debt,” Budget Secretary Benjamin Diokno told reporters on the sidelines of the 2017 proposed budget presentation.

Under the fiscal program, the government plans to borrow P631.3 billion, down from this year’s projected P695.4 billion.

The amount will finance payment of existing debts as well as the deficit that will reach P478.1 billion, equivalent to three percent of gross domestic product (GDP).

Despite this, debt as a percentage of GDP is seen to decline to 40.9 percent of GDP next year and “approach near 35 percent of GDP by 2022,” President Duterte said in his budget message.

The government measures debt against economic output since it shows if the economy is growing much faster than the liabilities it incur. A lower ratio shows better capacity for the country to meet its obligations.

“Unless you really grow at a rapid pace, the debt-to-GDP ratio should not really decline,” said Emilio Neri Jr., lead economist at Bank of the Philippine Islands.

“I guess they are really being optimistic in terms of growth,” he said in a phone interview.

Growth, as measured by GDP, is targeted between 6.5 and 7.5 percent next year and seven- to eight-percent from 2018 to 2022. The previous administration had a more optimistic assumption of up to 8.5 percent.

For Jonathan Ravelas, chief market strategist at BDO Unibank Inc., this means the Duterte administration looks forward to higher revenues.

This is despite a comprehensive tax reform program expected by September, which, among others, will trim top personal and corporate income tax rates and raise oil excise levies.

“For now, I think this is too good to be true because this means they are banking on better tax collection efficiency to meet their revenue needs,” Ravelas said in a separate phone interview.

“It is important to see how will their tax package appear since that would provide us with more clarity,” he said.

Diokno reiterated yesterday that value-added tax (VAT) would not be raised to 15 percent from 12 percent to help bridge the budget gap.

“We will revisit the VAT exemptions instead and expand the tax base,” Diokno said.