The national government’s debt ratio soared following its record budget deficit incurred last year due to unprecedented borrowings for the country’s coronavirus response, data from the Department of Finance (DOF) revealed.

Finance Undersecretary Gil S. Beltran said on Sunday, March 21, that the ratio of the national government outstanding debt to the country’s economy, as measured by gross domestic product (GDP), stood at 54.5 percent in 2020.

Beltran said the debt-to-GDP ratio accelerated from only 39.6 percent in the previous year.

“The COVID-19 pandemic led to NG deficit rising to 7.6 percent of GDP, the highest in the country’s history,” Beltran said in a report submitted to Finance Secretary Carlos G. Dominguez III.

The government’s budget deficit settled at P1.371 trillion last year, lower by 24 percent against the P1.815 trillion program, but more than double compared with P660.2 billion in the previous year.

Compared with its Southeast Asian peers, the Philippines registered a slightly higher debt ratio against the regional average of 51.5 percent. Indonesia at 38.5 percent, Vietnam at 46.6 percent, Thailand at 50.4 percent and Malaysia at 67.6 percent. From a pure risk perspective, higher debt ratios make it more difficult to borrow money while a low debt ratio suggests greater creditworthiness.

“ASEAN sovereign debt ranged from 38.5 percent to 67.6 percent of GDP with the Philippines at the middle of the scale,” the finance official said.

Beltran, however, said the government’s lower interest rates helped cushion the higher debt ratio’s fiscal impact, noting that the average interest rate on debt declined from 4.67 percent in 2019 to 3.88 percent last year.

In 2020, the government’s interest payments rose by only 5.4 percent from P360.9 billion to P380.4 billion.

The ratio of interest payments to revenues thus increased from 11.50 percent to 13.32 percent, up by 1.82 percentage points but the ratio of interest payments to expenditures declined by 0.5 percentage point from 9.5 percent to 9.0 percent.

"Unlike in previous high deficit episodes when government had to face both sky-high interest rates and a weakening peso, the NG emerged out of this year’s episode with lower debt service, low interest rates and a stronger peso,” Beltran said.

“The main reason for this positive confluence of events is the strong confidence of market players in the economy backed up by coordinated fiscal and monetary policymaking,” he added.

Data from the Bureau of the Treasury showed that the total outstanding debt of the national government reached P9.795 trillion at end-December 2020.

“As long as debt is managed prudently, as shown in the above ratios, the risks from debt exposure are minimized and additional resources continue to be obtained for projects that contribute favorably to development,” Beltran said.