THE PHILIPPINES’ debt-to-gross domestic product (GDP) ratio is unlikely to return to pre-pandemic levels as debt levels remain elevated over the medium term, the Bureau of the Treasury (BTr) said.
But the national government’s medium-term fiscal consolidation plan will ensure it can continue investing in its economic priorities while keeping its debt obligations sustainable, the BTR added.
“It must also be said that an aggressive return to the pre-pandemic debt ratio of 39.6% is technically and politically unfeasible,” BTr said in its annual report released on November 27.
The Treasury said this would require a “more dramatic” fiscal adjustment with the government running consistent budget surpluses.
But this approach would deprive the country of necessary public investment, it added.
The NG’s debt ratio stood at 61.3% at the end of September, higher than the 60.2% a year earlier.
This is still above the 60% threshold considered manageable for developing economies by multilateral lenders.
The government aims to reduce this to 60.6% by the end of 2024 and to below 60% by 2028.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said the government has “relatively larger budget deficits” because it needs additional government borrowing that adds to the outstanding debt.
“Faster GDP (gross domestic product) growth would also be a key element in bringing the ratio below the international threshold of 60%,” Mr Ricafort said.
Mr Ricafort said new tax and budget reform measures are needed to further reduce the budget deficit.
At the end of September, the deficit ratio stood at 5.14%, well below the 5.6% target for 2024.
“While debt to GDP will remain high compared to historical levels, strong and sustained economic growth of 5.6%, coupled with a steady reduction in budget deficits and a favorable negative real effective interest rate of 1, 3% on NG issuance, boosting support for debt sustainability,” the Finance Ministry said.
Foundation for Economic Freedom President Calixto V. Chikiamco said the government is “unlikely” to reduce the debt ratio because “the government has a spending plan to meet GDP targets.”
“There are currently more uncertainties now that Trump is in power and a global trade war is starting. Therefore, there are more uncertainties about whether the government will reach its debt ratio. However, if inflation is kept under control, the government is more likely to achieve its GDP targets,” Chikiamco said.
Economic managers are targeting GDP growth of 6 to 7% this year and 6.5 to 7.5% growth in 2025. ARAInosante