Debt-to-GDP ratio expands to 54.5%

MANILA, Philippines — The share of the country’s debt to gross domestic product (GDP) expanded to 54.5 percent in 2020 as the government ramped up its borrowings to address the debilitating effects of the coronavirus pandemic on the economy, the Bureau of the Treasury (BTr) reported yesterday.

Data from the BTr showed the national government’s outstanding debt settled at P9.795 trillion as of end-2020, up P2.063 trillion or 26.7 percent from the end-2019 level of P7.73 trillion.

Coupled with a record economic contraction of 9.5 percent last year, the debt-to-GDP ratio last year deteriorated from the record-low 39.6 percent in 2019.

The debt-to-GDP ratio is used by debt watchers and credit rating agencies to assess a country’s debt sustainability. A lower ratio indicates the government is generating more resources than debt, giving it more payment capacity.

“The increase in the country’s debt-to-GDP ratio was largely brought about by the COVID-19 pandemic that increased government spending,” Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said.

Along with the slower revenue generation capacity of the government due to the economic effects of the pandemic, the budget deficit widened, thereby necessitating more borrowings, he said. Preliminary government data showed that the country’s deficit swelled to 7.5 percent of GDP last year.

“The country’s 54.5 percent debt-to-GDP ratio is still below the international acceptable threshold of 60 percent of GDP, thereby giving the government greater leeway to increase spending, budget deficits, and overall debt to pump-prime the economy,” he said.

On a month-on-month basis, the government’s debt pile posted a 3.3 percent decline from the P10.13 trillion recorded at the end of November, primarily due to the repayment of its P540-billion short-term loan from the Bangko Sentral ng Pilipinas.

Domestic borrowings amounted to P6.695 trillion, 6.9 percent down from P7.19 trillion in November, but 30.6 percent higher than the P5.13 trillion posted in end-2019.

“The share of domestic debt relative to the total debt stock increased to 68.35 percent from 66.32 percent a year ago as the government continued its reliance on domestic borrowing to meet its financing needs,” the Treasury said.

External debt, meanwhile, accounted for P3.1 trillion or 31.65 percent of the total debt pile. This was higher by 5.4 percent as compared to P2.94 trillion in the previous month, and by 19.1 percent from the end-2019 level of P2.6 trillion.

The Treasury attributed the month-on-month growth to the issuance of US dollar-denominated bonds in the international debt market amounting to an equivalent of P132.06 billion to support the government’s COVID-19 response.

Moreover, the BTr said the appreciation in third-currency denominated debt added P10.67 billion to the peso value of external obligations.

Meanwhile, the Treasury said the national government’s guaranteed obligations rose by 3.5 percent to P458.35 billion in December from P442.83 billion in the month earlier.

“The increment was due to the net availment of domestic guarantees amounting to P27.52 billion, while third currency adjustment added P1.47 billion to the peso value of external guarantees,” the BTr said.

Since the beginning of the year, guarantees dropped by P30.40 billion or 6.2 percent from P488.75 billion in end-2019.