DOF rejects ceiling on debt-to-GDP ratio

MANILA, Philippines — The Department of Finance (DOF) has opposed a proposal seeking to enforce a debt ceiling of 50 percent of gross domestic product (GDP), warning this may hinder spending for recovery efforts in times of crisis.

Finance Secretary Carlos Dominguez III yesterday said the DOF sees no need for lawmakers to legislate a debt cap, as the government may be prevented from seeking financing in crisis periods.

“I don’t think at this point in time there is a need to put a debt cap and we make the country very inflexible,” Dominguez said at a House of Representatives hearing yesterday.

“I think the important thing is the Congress already has the power when it looks at the budget to determine a debt cap. Essentially, the determination of the debt cap is the determination of how much we spent,” he added.

House Bill 4538 or the Government Indebtedness Cap Act, authored by Deputy Speaker Vilma Santos-Recto, intends to limit the country’s outstanding debt to 50 percent of GDP. In filing the bill, she said allowing the debt stock to balloon may harm fiscal balance.

The government has added P1.81 trillion to the debt pile seven months into the year, widening the outstanding debt to a fresh record of P11.61 trillion as of end-July.

The debt stock has translated to 60.4 percent of GDP as of the first semester, exceeding the 60 percent threshold recommended by the international community, including multilateral lenders.

Based on estimates from the Bureau of the Treasury, the debt pile will amount to P11.73 trillion by the end of 2021, and will rise by more than 14 percent to P13.41 trillion in 2022.

In opposing a debt ceiling, Dominguez cited Indonesia’s case when it passed an emergency law last year waiving the deficit cap of three percent of GDP to propel pandemic spending. Jakarta, for its part, plans to revert its fiscal deficit to the legal limit by 2023.

“The moment the pandemic struck, (Indonesia) threw it out. What’s the point of having one when you really are going to breach it, you just throw away the law?” Dominguez said.

In July, the government more than doubled its borrowings to P337.14 billion, from P134.53 billion a year ago, on triple-digit increases in both domestic and external financing.

As of end-July, the government has borrowed a total of P2.27 trillion, or nearly 74 percent of the P3.07 trillion programmed for the year.