Debt-to-GDP ratio for 9 mths eases to 44.2% on-yr

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Economy outpaces govt liabilities

THE ratio of government debt to the country’s gross domestic product (GDP) dropped slightly in the first nine months of 2016 from a year earlier as the economy continued to grow faster than the amount of government liabilities.

In a statement on Friday, the Department of Finance (DOF) said the debt-to-GDP ratio slipped to 44.2 percent in September this year from 44.7 percent a year earlier. However, this year’s September 2016 ratio was slightly higher than the 43 percent recorded at end-June.

The DOF said debt management measures led to the improvement in the debt-to-GDP ratio, which measures the amount of a country’s government debt as a percentage of its GDP. It is an indicator used by credit rating agencies such as Fitch Ratings, Moody’s Investors Service and S&P Global Ratings to assess the creditworthiness of sovereigns.


The national economy grew 7 percent in the first three quarters of 2016, faster than the 5.7 percent pace a year ago. Over the same period, government debt rose 2.5 percent to P6.08 trillion from a year earlier.

“From a fiscal standpoint this should ease some of the concerns over the ability of the country to weather the intermittent turbulence in major economies (such as our major trading partners) and the world in general,” said Justino Calaycay Jr., marketing and research head of A&A Securities.

This should t ake some pressure off the peso deprecation, leaving the gyrations at the mercy of the US Federal Reserve and emerging opportunities in the developed world, he added.

“We must take into account, however, that the first six months of the new government operates under a budget passed by the previous dispensation, where the deficit targets were set,” he added.

Going forward, Calaycay said the government may be in for a wider deficit in the coming years as the Duterte leadership makes good of its plan to lower taxes, with a burden redistribution to other sectors, and higher public spending.

“Compared to other countries, most especially some advanced economies, weighed heavily by burgeoning debt, the Philippines has pared down in the last decade the proportion of its national government debt as percent of GDP to around the 44 percent level this year from 61 percent in 2006,” Metrobank Research analyst Pauline May Ann Revillas said.

While this is a positive development, she added that the Philippine economy would need more than lower debt-to-GDP figures, given the still volatile global economy.

She said the engines of the domestic economy would efficiently run on a “full tank,” which is derived from the right policy mix, in order to achieve positive macroeconomic results such as price stability, economic growth and financial stability.

“After all, this ratio is only a part of the bigger picture,” she explained.

Debt ratio forecast to fall to 35% by 2022

The DOF said the debt-to-GDP ratio is projected to sustain the yearly decline until falling to about 35 percent by the end of the Duterte administration, as it had continually dropped from 52.4 percent in 2010 to 44.7 percent in 2015.

The Bureau of the Treasury earlier reported the national government’s outstanding debt reached P6.087 trillion as of September, higher compared to the previous year, primarily because of the weaker peso against the US dollar and other currencies.

But despite the increase in the government’s outstanding debt in nominal terms, the DOF expects the debt-to-GDP ratio to remain “very manageable” for the final three months of the year as the economy expands at a faster pace than government liabilities.

“Strong fiscal fundamentals will continue to underpin robust economic growth during the rest of the year,” said Finance Undersecretary Gil Beltran.

In the first three quarters of 2016, Beltran noted that increased public spending contributed 0.87 percentage points, or 12.4 percent, of the 7.0 percent GDP growth.

A large bulk of the expenditure growth went to public works construction, which rose 30.5 percent in real terms, he said.

The DOF said the proportion of the government’s interest payments to its total expenditures likewise dropped to 13.4 percent during the period from 13.9 percent in 2015.

With heightened public spending, Beltran said government expenditure exceeded nominal GDP growth in the first nine months of the year.

Expenditures increased by 14.1 percent during the period, surpassing the 7 percent GDP growth at end-September. Also, expenditure effort rose to 17.96 percent of GDP from 17.09 percent last year, the agency said.

Meanwhile, it said tax effort of the national government remained at 14.21 percent at end-September, while revenue effort slid to 15.9 percent from 16.83 percent last year.

“Excluding oil and rice taxes, revenue effort would have declined by only 0.16 percentage point,” Beltran said.

“Tax effort stood still at 14.2 percent as oil revenues continued their downward plunge. However, netting out the effects of the oil price decline and rice, tax effort rose by 0.11 percentage point,” he added.

In the first nine months, the Bureau of Internal Revenue’s tax effort improved to 11.31 percent from 11.27 percent, while the Bureau of Customs’ figure slightly fell to 2.78 percent from 2.81 percent, the DOF said.

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