Budget Secretary Benjamin Diokno has said he is not worried about the impact of the Philippines’ higher budget gap target on the country’s credit ratings, saying the budget gap ceiling remains “reasonable”.
The Philippines currently has investment grade ratings from the three major debt watcher. Moody’s Investors Services currently rates it ‘Baa2’ with Stable outlook; Standard & Poor’s (S&P), ‘BBB’ with Stable outlook; and Fitch Ratings, ‘BBB-’ with Positive outlook. These were achieved since 2013.
In his speech at the Philippine Investment Conference 2016 in Makati City on Tuesday, Diokno said the proportion of government debt to gross domestic product (GDP) was raised from the two percent set by the previous administration to three percent.
The budget gap for 2017 was set at P478 billion, to rise to P777 billion at the end of the current administration’s term in 2022.
”This may appear scary for some investors but I can assure you that it is manageable, appropriate and sustainable,” he said.
Despite the rise in the budget deficit target, Diokno said debt to GDP is seen to decline to 35 percent by 2022 from about 45 percent in 2015.
During the question and answer portion after his speech, the budget chief said the three percent deficit to GDP ratio is the entry requirement for European countries vis-à-vis their credit ratings.
”For a country like us, which has the worst public infrastructure in this part of the world, we need to make up for that by spending on infrastructure,” he said.
The current government has set a 80-20 borrowing program for 2017 in favor of domestic fund sources. Specifically, gross domestic borrowing was set at P505.035 billion while gross foreign borrowings was set at P126.259 billion.
Diokno said there is a need to spend more on infrastructure to address, among others, the need to move people faster, citing that traffic congestion costs about P2.4 billion daily or account for about seven percent of GDP annually.
He said higher investment on infrastructure, among others, also creates jobs.