Debt-to-GDP ratio inches up in Q3

MANILA, Philippines - The National Government’s debt ratio rose slightly in the third quarter, but remains on track towards meeting its target this year, latest data showed.

The Aquino administration’s debt accounted for 45.3 percent of gross domestic product (GDP), up from 44.9 percent in the previous three months. This year’s target was set at 44.7 percent.

Debt-to-GDP ratio is a measure used by analysts and credit raters to gauge the sustainability of government debts over the long term. Last year, the ratio hit 45.2 percent, the lowest on record tracing back to 1996.

A lower ratio indicates the government has more than enough resources to settle its liabilities. While there is no suggested level, states usually consider a ratio of 50 percent, at the most, sustainable.

“This is still positive since you do not have risk once there is a hike in the US,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc., in a text message.

The US Federal Reserve is highly expected to raise rates this month for the first time in nearly a decade after the world’s superpower showed consistent signs of economic strength.

A hike in rates in the US, in turn, would attract capital flows to the world’s safe haven, which in effect would push rates up in emerging markets like the Philippines.

Higher rates could impact on debts with floating interest rates pushing them higher.

Cid Terosa, an economist at the University of Asia and the Pacific, said the current level of debt bodes well with the government’s overall balance sheet.