Easing of government debt burden to be 'gradual' — report
MANILA, Philippines — The next administrations would have to tighten their belts to prevent further growth of the government’s debt load, which has gotten heavier due to hefty coronavirus borrowings.
But the reduction of accumulated debts would be a slow one, as the economy would continue to face perennial problems beyond the Duterte administration that would require borrowings to fix.
"We expect rising headwinds in the longer term to spur policymakers into narrowing the fiscal deficit over the medium term and containing further growth in public debt," Fitch Solutions, a unit of the Fitch Group, said in a report released Friday.
“The gradual reduction (in public debt) will be due to three long-term challenges we expect the Philippines economy to face: 1) meeting domestic energy needs; 2) creating employment opportunities for the growing population; 3) addressing the country’s infrastructure deficit,” it added.
From a record-low ratio of 39.6% in 2019, state liabilities as a share of the economy surged to 54.5% in 2020 driven by the Duterte administration’s borrowing binge to fund a costly pandemic response. To be fair, those additional borrowings were necessary to bridge last year’s whopping budget deficit of P1.37 trillion, after anemic tax collections as a result of a prolonged recession failed to keep up with ballooning pandemic expenses.
In its report, Fitch Solutions forecast state debt as a share of the economy to peak at 57.7% in 2022 before “gradually” easing from there, citing the need for continued fiscal support to recharge the economy from a pandemic-induced slump. Revenues are projected to grow 7.5% annually in 2021 as the economy reopens while spending is seen growing 8.8%, with resources likely to be diverted away from infrastructure to support the pandemic response.
"As such, we maintain our forecasts for fiscal deficits of 7.7% and 6.5% of GDP in 2021 and 2022," Fitch Solutions said. “That said, we do not view such stimulus as a risk to the near-term public debt outlook and anticipate fiscal consolidation over the coming years.”
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