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Business

Debt ratio weakens past international standards

Louise Maureen Simeon - The Philippine Star
Debt ratio weakens past international standards
Following the 5.2 percent gross domestic product (GDP) growth rate in the third quarter, the share of national debt to the country’s output rose to 61.3 percent from 60.9 percent in the previous quarter.
Businessworld / File

As GDP slows in Q3

MANILA, Philippines — The country’s outstanding debt as a share to the overall economy remained above the internationally accepted threshold, even breaching the 61-percent level following a weaker-than-expected economic performance.

Following the 5.2 percent gross domestic product (GDP) growth rate in the third quarter, the share of national debt to the country’s output rose to 61.3 percent from 60.9 percent in the previous quarter.

This was also significantly above the 60.2 percent recorded in the third quarter of last year.

Similarly, the latest ratio is above the 60.6 percent yearend target set by the Development Budget Coordination Committee. As of end-September, the national debt is at a record P15.89 trillion.

As such, the current debt-to-GDP ratio remained above the internationally accepted threshold of 60 percent which still puts the Philippines at a vulnerable spot in terms of its capacity to pay off its financial obligations.

Reducing the debt-to-GDP ratio would mean that economic growth should outpace the level of borrowings of the Philippines.

Despite the increase, Finance Secretary Ralph Recto said the target of hitting 60.6 percent by the end of the year remains achievable.

Rizal Commercial Banking Corp. chief economist Michael Ricafort explained that the pick up in the debt-to-GDP ratio is a combination of increased government borrowings and slower-than-expected GDP expansion.

A faster economic growth would have helped in widening the GDP base to bring down the ratio.

Ricafort noted that slashing the ratio to below 60 percent would sustain the country’s favorable credit ratings to help better manage and sustain the country’s fiscal performance and overall debt management.

He added that achieving government targets would require narrower budget deficits, intensified tax revenue collections and more disciplined government spending through tax and other fiscal reform measures.

These should also be backed by faster GDP growth to enable the country to get international investments and financing at relatively lower borrowing costs with better terms and longer tenors.

In order to spur economic growth, Recto said the government is pushing for the swift passage of the national budget for 2025.

More than half of the budget will be allocated for both social and economic services, such as infrastructure, health, education, human capital development, social welfare, employment, housing and other social protection programs.

“These are investments in the Filipino people to create more quality jobs, increase their incomes and reduce poverty incidence,” Recto said.

The government will also intensify monitoring and mitigation of price increases on food and non-food items to keep inflation within the target range.

The government will sustain high public spending on infrastructure projects as it has the highest multiplier effect on the economy, Recto said.

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