Government to limit debt as new taxes hang

“We are on track to bringing down the debt-to-GDP ratio to less than 60 percent by 2025. We have a sound and prudent strategy in place to effectively manage our debt and financing requirements.”

MANILA, Philippines — With outstanding debt at a record high, the government may have to go slow with its borrowing spree, at least for now, amid its no new taxes stance and the still elevated interest rate environment.

Economists told The STAR that the Marcos administration will likely limit debt in the short term given the lack of potential sources of excess revenues after Finance Secretary Ralph Recto said he is not inclined to impose new taxes.

The country’s outstanding obligation settled at a record P14.62 trillion as of end-2023, taking a heavy hit from high interest rates. For 2024, debt is expected to balloon to P15.84 trillion.

Leonardo Lanzona, economist and professor at the Ateneo de Manila University, said the government should have prioritized debt reduction especially coming from the pandemic when massive borrowings were incurred.

“As debt increases from an already huge amount, the probability of defaulting on these loans creates risks, which is a turnoff for investors,” Lanzona said.

“The government may likely limit its debt from now on. Unless it can increase tax revenues, there is little chance of getting loans especially because of BSP’s (Bangko Sentral ng Pilipinas) interest rate policy,” he said.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion said there are already signs of such a track as part of the government’s debt consolidation efforts.

He said one of the obvious indications is the subdued impact of government consumption in the overall gross domestic product (GDP) during the fourth quarter.

“Clearly, they have prioritized debt and budget deficit management, and one clear sign is the weak impact of government spending. Borrowing may be tempered, especially that interest rates are still elevated,” Asuncion said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., echoed the same sentiment, noting that constraint would still be the high debt servicing costs from increased interest rates here and abroad.

The US Federal Reserve recently kept rates unchanged, hinting that rate cuts are not coming anytime soon.

Likewise, the BSP has discounted the possibility of a rate cut in the first half, believing that there is still room for a possible hike.

“The risk of government underspending would still be there to rein in budget deficits and the additional financing to fund the budget gap,” Ricafort said.

Asuncion said the government may have to reduce its bond issuances since these are more exposed to elevated interest rates, unlike concessional loans that may have special low rates and are not market-determined.

For Ricafort, the administration will likely seek loans that are cheaper and with longer payment terms especially from multilateral lenders.

Recto, for his part, has maintained that the country’s debt remains at a “very manageable level.”

“We are on track to bringing down the debt-to-GDP ratio to less than 60 percent by 2025. We have a sound and prudent strategy in place to effectively manage our debt and financing requirements,” Recto said.

Research and advocacy group IBON Foundation said the Marcos administration is keen to keep creditors happy, paying out some P2.29 trillion in debt service since it assumed office.

IBON’s analysis showed that for every P100 borrowed, P72 was used to service debt, higher than the P55 recorded during the Duterte administration.

Such a trend is disturbing because it means less funds for government spending for social services and protection, among others, according to IBON executive director Sonny Africa.