Govt debt-to-GDP ratio improves in 2016

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THE general government (GG) debt-to-gross domestic product (GDP) ratio improved to 34.6 percent in 2016 on the back of circumspect cash and debt management, the Department of Finance (DoF) reported on Thursday.

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In a statement, the DoF said the GG debt-to-GDP improved to 34.6 percent in 2016 from 36.2 percent a year earlier.

The ratio is used by Fitch Ratings, Moody’s Investors Service and S&P Global Ratings to assess the creditworthiness of sovereign borrowers.

General government debt consists of outstanding obligations of the national government (NG), Central Bank Board of Liquidators, social security institutions and local governments, minus the amount allotted to the Bond Sinking Fund (BSF) to cover maturing bond obligations.

In absolute terms, general government debt increased by 3.9 percent to P5.01 trillion in 2016 from P4.82 trillion a year earlier.

Of the total GG debt, 58 percent or P2.933 trillion consisted of domestic borrowings and 42 percent or P2.084 trillion of foreign obligations.

The rise in nominal GG debt was primarily due to the 3.8 percent increase in consolidated NG debt (net of the Bond Sinking Fund) to P5.456 trillion from P5.256 trillion as of end-2015.

“This was brought about by the net issuance of domestic securities (gross borrowings less redemption); the year-on-year peso depreciation; as well as the decline in BSF holdings,” it said.

Local government debt grew by 13 percent to P86 billion from P76.1 billion.

“The increase in borrowings was utilized for financing public services and economic enterprises,” the DoF noted.

Mitigating the increase in the nominal level of GG debt were the intrasector debt holdings of P526 billion, up 4.5 percent or P22.8 billion from P503.2 billion.

Social security institutions increased their holdings of government securities by P19.5 billion, while local government loans held by the Municipal Development Fund Office (MDFO) was up P3.4 billion.

Fiscal consolidation

IHS Markit Asia Pacific chief economist Rajiv Biswas noted the Philippine government has made tremendous progress in fiscal consolidation since 2004, when the government debt-to-GDP ratio reached a high of 74.4 percent of GDP.

“Since that time, the Philippines government debt-to-GDP ratio has more than halved, making the Philippines one of the most successful countries in the world in prudent fiscal management during the past two decades,” he said.

What happened was a reflection of sound fiscal policy and rapid economic growth, according to the economist.
As a result, the annual debt servicing cost has steadily declined, freeing fiscal room for expenditure on essential social spending and investing in public infrastructure, Biswas noted.

“However it is important that the Philippine government aims to further reduce the debt-to-GDP ratio over the medium-term, in order to continue to reduce the burden of government debt servicing costs,” he said.

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