Phl government debt increases by 3.3%

According to the Institute for Development and Econometric Analysis, Inc. (IDEA) NewsBriefs, a regular publication produced by IDEA, Inc., the National Government (NG) outstanding debt at the end of August amounted to PhP5643 billion, 3.3 percent higher than the PhP182 billion recorded at the end of July. Broken down, 35.4 percent or a total of  PhP1995 billion came from foreign creditors while 64.6 percent or PhP3648 billion came from domestic creditors.

As per IDEA, compared to the debt at the end of July,domestic debt increased by 4.2 percent to PhP148 billion. This was attributed to the issuance of 147 billion worth of retail treasury bonds. Meanwhile,external debt rose 1.7 percent to PhP34 billion. On a year-to-year basis, NG obligations rose 8.9 percent or PhP461 billion, of which domestic debtrose by 16.3 percent and foreign debt by 2.5 percent. Greater reliance on domestic sources isdue to the government’s desire to lessen exposure to foreign exchange risk.

Meanwhile, NG guaranteed debt totalled PhP500 billion this August, 1.6 percent higher than July levels. Broken down,28.7 percent or PhP144 billion are domestic guaranteed debts while the remaining 71.3 percent or PhP356 billion are external guaranteed debt obligations. The government expressed its plans to reduce debt to 40 percent of the country's gross domestic product (GDP) by 2016. Debt-to-GDP ratio on a net basis is expected to be lower than 40 percent. The current national government debt-to-GDP ratio for the first half is 49.5 percent,amounting to PhP5.451 trillion, lower than the 50.6 percent recorded in the same period last year.This is near the 48 percent national government debt-to-GDP ratio target aimed by the government, according to the same published report.

Furthermore, Central bank officials expect growth in the third quarter to slow down compared to the first and second quarter growth. Lower growth was attributed to low inflation, which was at 2.8 percent in September and is lower than the 3 to 5 percent target of the central bank. Weak imports and exports data also contributed to lower expected growth, as both of declined by 0.9 percent and 0.8 percent respectively compared to last year's levels. Despite this, central bank officials expect growth to remain between the 6 to 7 percent range.

Moreover, monetary authorities expect M3 growth to normalize in the second half of the year due to strong growth of the Philippine economy. As a result, monetary authorities do not think that the continued increase in domestic liquidity will be inflationary. Last August, M3 growth is at 30.9 percent, amounting to PhP6.028 trillion. Continued increase in domestic liquidity was driven by restrictions on the central bank's special deposit accounts (SDA's) which is used for banks' fund management.

Lastly, inflation is expected to settle within a 2.8 to 3.6 percent range, higher than the 1.9 to 2.8 percent range in September. The increase will bring average inflation to 2.8 percent, still lower than the 3 to 5 percent target of the Bangko Sentral ng Pilipinas (BSP). Monetary authorities attributed the likely increase in average inflation to higher prices of rice and fresh vegetables due to the damage caused by Typhoon Santi, according to the researchers of IDEA.

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