National debt piles up to record P12.79 trillion

MANILA, Philippines — The Duterte administration stepped out of office with a record-high P12.79 trillion in debt amid its ramped up borrowings to address the economic and social impacts of the pandemic, effectively putting the Marcos government in a much tighter fiscal spot.

Latest data from the Bureau of the Treasury showed that the national debt went up to its highest level to date at P12.79 trillion as of end-June.

This was 2.4 percent higher than the P12.5-trillion debt recorded a month earlier and was 14.6 percent larger than the P11.17 trillion in obligations on a yearly basis.

This is the debt stock that the Marcos administration has inherited from former president Rodrigo Duterte, making it more difficult for the new leadership to address its fiscal space.

The current debt pile is more than double the P5.9 trillion in debt that the Aquino administration left in June 2016.

The country’s financial obligations started to pick up significantly in 2020 when the COVID pandemic hit.

The debt stock soared in the past two years as government revenues dipped due to the economic downturn as businesses and activities were halted following mobility restrictions.

Data showed that additional debt incurred by the government since the pandemic reached over P5 trillion –P2 trillion each for 2020 and 2021 and another P1.06 trillion for the first half of the year.

The Treasury said the debt portfolio climbed in June due to the net issuances of domestic and external loans as well as currency adjustments.

ING Bank senior economist Nicholas Mapa said the sizable buildup in debt was partly due to the economic recession induced by the pandemic.

However, Mapa said the current debt-to-GDP ratio at 63.5 percent is above the internationally accepted threshold of 60 percent and has been above this level for more than a year.

“This leads to a fiscal handicap in that the current administration will need to navigate the recovery with tight fiscal space amid the threat of a credit rating downgrade,” Mapa said.

“This limits their ability to utilize fiscal muscle to stimulate growth unless fresh revenues are generated,” he noted.

Given the ambitious plans of the government, Mapa argued that without fresh revenue sources in the pipeline,  the Philippines could just see a moderate pace of debt reduction and this may leave the country susceptible to a potential ratings downgrade.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, said the new record-high in the national government’s outstanding debt was largely brought about by the resumption of borrowings after the national elections in May.
The government only managed to reduce the debt pile in May due to the election ban on public works and other economic activities.

Ricafort said that because of the government’s huge debt, there is a need to intensify tax collections and implement tax reform measures.

He said that other fiscal reform measures such as disciplined spending, right sizing the government, preventing wastage in government spending, and anti-corruption measures to cut down on the debt are necessary.
Further, the Treasury said the majority or 68.5 percent of the debt pile came from domestic borrowings while the remaining 31.5 percent came from external sources.

Total domestic debt at P8.77 trillion inched up by 1.2 percent on a monthly basis and jumped  by 10.4 percent from the P7.94 trillion year-on-year.

External obligations, on the other hand, increased by five percent to P4.02 trillion month-on-month and surged by 24.7 percent from P3.23 trillion in the same period last year.

The Treasury said the increment in external debt was also due to the impact of local currency fluctuations against the dollar amounting to P186.94 billion, as well as the net availment of external financing worth P43.18 billion.

This offset the P35.72 billion effect of net depreciation against the   dollar on third-currency denominated obligations.

Broken down, commercial loans accounted for 55.4 percent of total external debt while multilateral and bilateral loans were at 34.2 percent and 10.5 percent, respectively.

Meanwhile, total debt guaranteed obligations went up by 3.6 percent to P413.93 billion due to the net availment of domestic guarantees amounting to P9.34 billion and the impact of local currency depreciation against the  dollar of P10.44 billion.