Q1 Govt debt-to-GDP ratio eases to 38.1%

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The level of general government debt as a ratio of gross domestic product (GDP) dropped to 38.1 percent in the first quarter of 2014 from 38.5 percent a year earlier, the Department of Finance (DOF) said on Tuesday.

The DOF said the improvement came on the back of the government’s improving liability management. A private bank analyst said, however, a lower debt-to-GDP ratio does not always reflect positive development.

The latest DOF data showed that general government debt stood at P4.492 trillion in the first quarter. Components of the debt include outstanding debt of the national government, the Central Bank Board of Liquidators, social security institutions and local governments, less the intra-sector holdings of government securities including those held by the Bond Sinking Fund (BSF).

The government debt-to-GDP ratio is an indicator used by many debt watchers to assess the creditworthiness of sovereigns.


“The Philippine government continues to improve its liability management performance on the back of the Aquino Administration’s commitment to uphold the nation’s creditworthiness,” the Finance agency said in a statement.

General government debt, which nets out intra-holdings of government securities including those held by the BSF, eased amid the economy’s strong GDP performance and slower debt accumulation for the second quarter to the fourth quarters of 2013, as part of the government’s priorities on proactive liability management.

The DOF noted that combined investment in government securities by the Government Service Insurance System and the Social Security System rose to P481 billion from P474.6 billion between 2013 and the first quarter of 2014.

In addition, the DOF showed the foreign component of the consolidated general government debt declined to 42.06 percent from 43.39 percent between 2013 and the first quarter of 2014 behind government efforts to reduce exposure to foreign currency risk.

As a result, the domestic component rose slightly, to 57.94 percent from 56.61 percent during the same period, it added.

“We will continue to bring down government debt as part of our efforts to minimize government risk and liabilities. As our economy continues to grow, we want to ensure that we do so on sound and strong fiscal foundations,” Treasurer of the Philippines Rosalia de Leon said.

Capacity building
Nicholas Antonio Mapa, Bank of the Philippine Islands associate economist said he would not mind seeing a higher debt-to-GDP ratio if it meant the government had been investing in capacity building efforts, particularly on infrastructure spending.

Mapa noted that given the apparent inadequacy of existing infrastructure and the imminent end of the ultra accommodative stance of the United States Federal Reserve, the government should actually be trying to push up this number to spend on capacity building.

“The government debt-to-GDP ratio is a very dynamic number in the sense that it is driven by both the debt number and the denominator, the overall GDP.

Furthermore, the debt number may be increasing but this may be due to good investments in highways and airports to build capacity,” Mapa explained in an e-mail to The Manila Times.

“On the other hand, the debt number could be declining simply because the government has not been spending as much as it should,” he added.

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