Debt-to-GDP ratio drops to 51.2% in Q1

MANILA, Philippines - The ratio of the country’s debt to gross domestic product (GDP) declined in the first quarter of the year, raising chances of a future credit rating upgrade, latest data from the Department of Finance (DOF) showed.

Debt-to-GDP ratio, an indicator of an economy’s health, is the amount of national debt of a country as a percentage of its total economic output.

It is one of the main indicators considered by global debt watchers in assigning a credit rating to a country.

According to the latest data from the DOF, first quarter debt-to-GDP ratio fell to 51.2 percent from the previous year’s revised 53.9 percent.

The decline is due to faster economic growth and “debt measures” the government undertook during the period, Finance Undersecretary Gil S. Beltran said over the weekend.

The country’s debt increased by 5.6 percent to P4.7 trillion in the first quarter of the year from the previous year’s P4.45 trillion, data from the Bureau of the Treasury (BTr) showed.

On a nominal basis, GDP or the sum of all goods and services produced within the economy grew to P9.193 trillion from P8.268 trillion a year ago.

“This means that the economy is growing faster than the debt because the deficit is also contained,” Beltran said.

With the latest debt-to-GDP ratio, Beltran said the government is on track to meeting the 55.5 percent debt-to-GDP goal this year.

In 2010, the ratio fell to 55.4 percent, lower than the 57 percent target.

Debt swaps implemented since last year allowed the government to save on interest expenses.

The swaps allowed exchanges of debts with high interest and short maturity with those having low interest and long maturity.

Through the swaps, the government was able to extend average debt maturity to 8.8 years compared to 7.9 years as of June last year. The last swap by the government was in December with P199 billion worth of new 2020 and 2035 securities substituted for outstanding debt in the market. 

The Treasury bureau said it is planning another swap that would involve local securities soon.

The government is aiming for a credit rating upgrade this year.

“Of the three main credit rating agencies— Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch Ratings— only S&P so far raised the country’s credit worthiness to BB stable from BB- in November 2010. Moody’s, for its part, raised its outlook for the Philippines to “positive” from “stable” last January. Fitch has not made any changes in its outlook or rating,” the Finance department said.