Econ managers expect downtrend in government debt

MANILA, Philippines - National government debts are safe from local and external shocks and could even decline further over the next decade, economic managers said in a new report released Tuesday.

 “The sustainability of NG debt has advanced further with falling debt level and improved dynamics,” the Development Budget Coordinating Committee (DBCC) said on its Fiscal Risks Statement.

“Debt-to-GDP ratio is expected to continue on a downward trend even with the occurrence of large disasters,” it added.

DBCC said the NG debt is expected to account to just “a little over” 30 percent of gross domestic product (GDP) over the next 10 years. The ratio currently stands at 44.9 percent as of June.

The ratio measures the sustainability of government’s debt and shows that a lower number indicates more capacity for the state to settle them.

On a worst case scenario of a “large natural disaster,” the DBCC, the interagency body tasked to craft macroeconomic assumptions, said liabilities would still average 36.4 percent of economic output until 2024.

 “Nonetheless, there is a 50 percent confidence this will remain between 34- and 38-percent, and a 95 percent likelihood this will remain below 43 percent,” the report said.

Typhoons, according to the report, make landfall in the Philippines by an average of 8.9 times every year, putting a dent on economic growth, revenue collections and making additional spending necessary.

The analysis shows that even on this case, borrowing funds— or incurring debt— remains controlled.

The same case could be said of external risks coming from a potential increase in interest rates, the DBCC said.

“Re-financing risks is minimal and mitigated by institutional safety nets…Exposure to interest rate shocks is likewise limited,” it pointed out.

Average NG debt has a maturity of 9.99 years, putting only 8.5 percent of total debt stock due over the next 12 months. Only 6.83 percent of them are in floating interest rate which could follow market rates once they surge.

Those payable within a year also has an average coupon of between 6.26 percent and 7.84 percent, settling them even before interest rates could spike. Only 6.2 percent of debt is held by foreigners.