Debt-to-GDP ratio hits 16-year high

Elijah Felice Rosales - The Philippine Star

MANILA, Philippines — The country’s outstanding debt has now spiraled to 63.1 percent of the economy, the highest in 16 years, with experts warning this may no longer be sustainable moving forward.

The Bureau of the Treasury yesterday reported that the debt level, when measured against the gross domestic product (GDP), has risen to a 16-year high as of the third quarter.

In 2005, the Arroyo administration recorded a debt-to-GDP ratio of 65.7 percent after posting an all-time high of 71.6 percent the previous year.

Domestic debt grew as a share of GDP to 44.4 percent from 43 percent in the second quarter. The proportion of foreign obligations in relation to GDP also went up to 18.7 percent from 17.5 percent on a quarterly basis.

The international community observes a debt threshold of 60 percent of GDP, as going beyond this marker may alarm credit monitors and multilateral lenders on the capacity of an economy to pay off its debts, especially during a pandemic.

Ateneo de Manila University economics professor Leonardo Lanzona said the government used its borrowings to prop up the economy, expanding it by 7.1 percent in the third quarter.

However, Lanzona warned that the additional debts failed to revitalize the labor sector, with the jobless rate ballooning to 8.9 percent in September, the highest this year, even as lockdown restrictions especially in Metro Manila were lifted during the month.

As such, Lanzona said the debt pile would no longer be sustainable if the employment numbers fail to pick up in the coming months – a trend that can be compared to the Marcos era.

“While debt seems to have [been] used appropriately in shoring up the economy, unemployment rate is at record levels this year at 8.9 percent. This suggests that the growth-debt situation may now be sustainable,” Lanzona told the STAR.

“Sustainability requires that we utilize our local resources and thus [the need for] labor intensive growth strategy. Otherwise, we may get a return to the Marcos period of huge debts and slower growth,” he said.

On the other hand, De La Salle University economics professor Maria Ella Oplas said the debt-to-GDP ratio would only sink below the 60 percent level once the government contains the spread of the virus and workers return to their former jobs.

With Metro Manila’s shift to Alert Level 2, Oplas said most of the economy has reopened to the benefit of jobless Filipinos looking for employment opportunities.

Also, the government can expect its revenues to increase if the quarantine status is maintained, if not downgraded to Alert Level 1, as stores and their workers formerly shut by lockdown rules will begin remitting taxes, Oplas said.

“With jobs available, we expect people to have the means to spend, and spending would mean revenue for the government. These revenues can be used possibly for debt payment, unless the government finds new programs to spend on,” Oplas told The STAR.

“If the government wants to make its debts sustainable, it should work on making the economy demand-driven—more revenues, less expenditures. Let the market work,” she added.

The country’s debt stock has spiraled to a record P11.92 trillion as of end-September, exceeding the government’s target of P11.73 trillion with three months left in the year.

The government expects a debt-to-GDP ratio of 59.1 percent for the year, rising to 60.8 percent in 2022, before falling to 60.7 percent in 2023 and 59.7 percent in 2024.

Further, it plans to borrow P3.07 trillion in 2021 on a mix of 81:19 in favor of domestic sources to finance a budget deficit worth P1.86 trillion, or 9.3 percent of GDP.

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