Government debt load eases in May

MANILA, Philippines — After repaying its debt to the Bangko Sentral ng Pilipinas, the national government saw its obligations ease in May, but concerns remain as mounting obligations threaten to limit the state's spending choices.

Treasury data released on Friday revealed the state's debt stock trimmed 2.1% month-on-month to P12.5 trillion in May. Of the outstanding debt levels, 69.7% came from domestic sources while 30.7% came from external creditors.

Arresting the growth of the debt pile was the result of the national government's P300 billion repayment to the BSP, which lent money to that state to help it fund its coronavirus programs. The loan was due in June but the government paid it in advance in May.

Since the beginning of the year, debts have accumulated by 6.5% or P767.2 billion.

Broken down, domestic borrowings reached P8.67 trillion in May, inching down 3% from the end-April levels. External debt grew 0.1% month-on-month, largely due to the effect of a depreciating peso that cost P15.04 billion.

A fast growth of debt means the Marcos Jr. administration would need to find ways to bag larger revenues for public spending while navigating a tight fiscal space.

By the end of 2021, state liabilities already accounted for 60.5% of the country’s gross domestic product, the highest ratio since 2005 and breaching the 60% threshold deemed manageable for emerging market economies.

"We think that the plan to outgrow debt by continuously banking on 7% GDP growth is a bit too optimistic. Next year, GDP will lose its momentum from base effects coming from the pandemic and the economy will face headwinds from slower economic growth of advanced economies," Domini Velasquez, chief economist of China Banking Corp., said.

"Eventually, we think that the government would eventually resort to increasing taxes to help lower the country's debt stock. There are many options that will not disproportionately hurt the poor," Velasquez added.