Gov’t debt to economic output ratio drops to record low

MANILA, Philippines - The ratio of government debt to economic output dropped to a record low last year due to the “proactive liability management” of the Aquino administration that helped make debts more manageable.

General government debt accounted for 40.6 percent of gross domestic product (GDP) last year, the Department of Finance (DOF) said. It was the lowest since record began in 1998.

General government debt is a broader measure of state liabilities considered by credit rating agencies in measuring the sustainability of sovereign debts.

The metric includes those incurred by both the national and local governments as well as social security institutions such as the Social Security System and Government Service Insurance System.

It nets out those located in the “bond sinking fund” (BSF) which is the amount set aside and invested elsewhere by the state whenever it borrows money from the financial markets.

“The government remains committed to its proactive liability management agenda. The improvement in our debt statistics is the result of our policy of structural fiscal sustainability,” Finance Secretary Cesar Purisima said in a statement.

According to the DOF, the decline could be traced from a dip in foreign debts as the Aquino administration decided to buy back P22.3 billion worth of these liabilities using the BSF.

Figures showed the transaction increased the BSF holdings by 29.9 percent. The absolute amount of debts was not immediately available.

The Central Bank Board of Liquidators, which handles the old central bank’s debts, also “paid in full” the last foreign liabilities it owed, the department said. It however did not reveal the amount settled.

As a result, the foreign component of consolidated debts went down to 44.1 percent last year from 50.2 percent in 2011, the DOF said.

The Aquino administration has been focused on reducing its foreign debts to avoid foreign exchange risks, which alter the amount of external liabilities depending on peso movements.

For this year, the government has said it will not raise funding offshore and just take advantage of high domestic liquidity to meet its financing needs.