Government debt accumulates the most in August during pandemic

MANILA, Philippines — The Duterte administration increased its debt in August by most since before the coronavirus spread into a pandemic, the Bureau of the Treasury reported on Wednesday.

The outstanding debt stock climbed to P9.62 trillion as of last month’s end, up 4.92% from the previous month. Last month marked the fastest accumulation of liabilities since they rose 5.2% last February. 

Since end of last year, liabilities have accumulated by 24.4%, an unprecedented increase triggered by government’s conscious choice to rely on foreign loans for cash to respond to the health crisis. 
A further uptick is on the table as the government expects to cap the year with obligations up to P10.14 trillion.

Broken down, a surge in domestic liabilities offset a slight decline in external obligations last month, Treasury data showed.

Local debts rose 7.3% month-on-month to P6.71 trillion, largely on account of a record P516.3-billion in  proceeds from a retail Treasury bond sale that month. Three-year RTBs were sold in August as part of the government’s fund raising to cover a revenue gap this year.

Foreign liabilities, meanwhile, inched down 0.2% during the same period to P2.9 trillion. The decline, however, did not mean fewer loans, but was largely a result of the peso strengthening against the dollar, which in turn, decreased the value of most external debts.

Netting out peso appreciation and debt payments, Treasury itself noted that P27.07 billion in proceeds from external loans entered state coffers last month. Another P4.64 billion was added to the pile due as the peso weakened against foreign currencies apart from the greenback.

After the pandemic messed with budget plans this year, the government has planned a record borrowing to bridge a 16.5% drop in revenues and fund a historic rise of the deficit to P1.81 trillion by yearend.

Large borrowings, in turn, are slowly translating into bigger debts, all while the economy shrinks into recession. The tandem means a deterioration even in the proportion of debt to economic output, a globally accepted gauge of capability to settle obligations.  

From January to June, debt accounted for 48.1% of gross domestic product, up from 43.4% in first quarter. Before the pandemic struck, the ratio settled at a record-low of 39.6% in end-2019. — Prinz Magtulis