Philippines likely to exceed debt target this year

MANILA, Philippines — The Philippines is expected to surpass its P14.63 trillion debt assumption by end-2023, but the government remains optimistic such a level remains manageable as the economy grows and recovers from the pandemic.

In a briefing, national treasurer Rosalia de Leon said the government may exceed the year-end debt expectations, but emphasized that the outstanding debt as a share to the overall economy remains a more important metric.

As of end-May, the country’s outstanding debt had breached the P14-trillion mark and is now 96.35 percent of the P14.63 trillion expected debt pile by year’s end.

But as of the first quarter, debt as a share of gross domestic product was at 61 percent, better than the 63.5 percent in the same period last year, but slightly above the end-2022 debt-to-GDP ratio of 60.9 percent.

“We are not really thinking of it in terms of the nominal because we have repayments. And we look at debt-to-GDP and how we are using the debt to grow the economy,” De Leon said.

The current debt-to-GDP ratio remains above the internationally accepted threshold of 60 percent, which still puts the Philippines at a vulnerable spot in terms of its capacity to pay off its financial obligations.

Reducing the debt-to-GDP ratio would mean that economic growth should outpace the level of borrowings of the Philippines.

“This year, we might end up at around 61 percent. We are confident with our six to seven percent (GDP) growth (for the year),” De Leon said.

The administration targets to bring down the debt-to-GDP ratio to less than 60 percent by 2025 and further down to 51.1 percent by 2028.

Finance Secretary Benjamin Diokno, for his part, insisted that the country’s debt remains manageable, noting that even credit rating agencies, such as Fitch and Moody’s, are not worried about the obligation level.

De Leon added that credit rating agencies are not really concerned about the country’s paying capacity as the debt profile continues to be resilient in terms of foreign exchange composition and maturity of debt.

“It depends on where you put it. It’s not bad to borrow money for as long as you use it properly,” Diokno said.

“We are using the money for infrastructure and the meaning of that is we are expanding the capacity of the economy,” he said.

Further, De Leon said the government would proceed with the first Retail Dollar Bond (RDB) issuance of the administration by September.

The government aims to raise $2 billion from its first RDB, which is part of the government’s program to make government securities available to retail investors, especially individuals.

“We are doing the marketing now and if markets are favorable, we can have it by September,” De Leon said.

The government also lowered the minimum investment needed for the RDB to $200 from the $300 during the first issuance in September 2021 under the Duterte administration.

During the first RDB issuance, rates settled at 1.375 percent as interest rates globally were low amid the pandemic.

But since last year, rates have been on an uptrend following high inflation and monetary policy tightening both on the global and domestic fronts.

Apart from raising funds for the country’s priority projects, RDBs are issued to diversify funding sources of the government, as well as promote financial literacy and inclusion among Filipinos.

It also targets to develop the domestic capital market via the provision of a low-risk investment with competitive yields than term deposits.

The government also plans to float euro and yen denominated bonds next year.