ECONOMIC GROWTH is underway The Department of Finance (DoF) said on Monday that the increase in national government (NG) debt will be surpassed, with borrowing costs expected to fall as global central banks cut interest rates.
During the Development Budget Coordinating Committee (DBCC) briefing before the House Committee on Appropriations, Treasury Secretary Ralph G. Recto said borrowing costs remain manageable as they are “much lower” than gross domestic product growth ( GDP) of the country.
“Actually, our eFThe effective interest rate for next year is only 5.3%, which is very cheap considering that the average term of our debt is 7.5 years. When we come inFOur real interest rate is just 2.3%, much lower than our projected real GDP growth of 6.5%, meaning we are on track to outgrow our debt,” he said.
A country’s debt is better measured by the size of its economy, as this indicates its ability to meet its obligations, Mr Recto said.
“From 60.9% (debt ratio) in 2022, it has fallen to 60.1% in 2023. And we are determined to continue to push it below 60%, so that we have sufficient buffer in case a new crisis hits us” , he said.
According to the Bureau of the Treasury, the debt-to-GDP ratio is expected to reach 60.6% by the end of 2024. She sees the debt ratio falling to 60.4% in 2025, 60.2% in 2026, 58.4% in 2027 and 56.3% in 2028.
“The continued decline in our debt-to-GDP ratio since the pandemic is one of the reasons why our credit ratings remain high… This means that not only do we have the capacity to service our debts, but we also have greater access to cheaper financing, ” he said.
The DBCC targets GDP growth of 6-7% this year and GDP growth of 6.5-7.5% in 2025.
At the end of June, NG’s outstanding debt rose to a new high of P15.48 trillion, up 9.4% from a year ago. The debt is expected to reach P16.06 trillion by the end of 2024 and P17.35 trillion by the end of 2025.
“It is a matter of making money, but it can also be that the money becomes economic. I think it is an obligation to do this (Even though it seems like our debt is growing now, our economy is also growing faster. This means we can pay back our obligations),” Mr Recto said.
Mr Recto said the government is now paying off the “pandemic loans” it inherited from the previous administration.
“We are now refinancing the large loans taken out during the low interest rate period in 2020 to 2022 with new debt that carries a higher interest rate. This is why our interest payments for next year are about 11% higher,” he said.
For 2025, the NG has set its borrowing program at £2.55 trillion, down 0.97% on this year.
The government is also allocating P2.05 trillion for its debt service program next year, up 1.19% from this year. Of this, P848.03 billion will go to interest payments.
Mr Recto said he expects interest payment growth to moderate as central banks move to cut policy rates.
Last week, the US Federal Reserve kept its key policy rate at a range of 5.25-5.5%, but could start easing in September.
The Bangko Sentral ng Pilipinas announced a possible 25 basis point cut at its August 15 meeting.
Mr Recto reiterated that the government’s current debt level is not a cause for concern.
“There is nothing inherently wrong with a country being in debt, as long as the money is used for the right purposes, such as growing the economy, which in turn creates more jobs, increases income and brings in more income for the government,” he said.
“In our case, we are using debt to fuel our stronger economic recovery by investing in more infrastructure and human capital development projects that have the greatest multiplier effect on the economy.”
Meanwhile, Mr Recto said the country’s budget deficit is also still manageable.
“As a percentage of GDP, our deficit remains very manageable, at 4.5% in the first quarter,” he said.
The government has set the budget deficit ceiling for this year at 1.48 trillion euros, or 5.6% of GDP. For next year, the budget deficit ceiling is P1.54 trillion or 5.3% of GDP. — BMDC