The Philippines continued to be faring well despite higher debt ratio, as the Department of Finance (DOF) explained that the nation’s economic fundamentals should be considered in determining credit risk.

Finance Secretary Benjamin E. Diokno said on Thursday, July 14, that the government’s 17-year high debt-to-gross domestic product (GDP) ratio of 63.5 percent is not the sole criterion that matters in evaluating default risk.

“The economic fundamentals of the country should be considered,” Diokno said.

“The demographic profile of the country matters—young or aging. Resiliency matters—how did it perform in previous crises? Is the economy dependent on many or limited sources (tourism, coffee, agricultural exports)? Quality of political institutions (democratic or authoritarian?),” he added.

Diokno pointed out that the Philippines was not among the nations with high probability of debt default.

“The fiscal and monetary authorities are in control. The debt-to-GDP ratio is manageable. The banking system is sound and more than adequately capitalized; the NPL which is low, continues to fall,” Diokno said.

In addition, the finance chief said the Philippine banking industry has build in enough buffers. 

“Our external sector remains robust: GIR is more than enough and there is a steady structural inflows of foreign exchange: OF remittances, BPO receipts, rising exports,” Diokno said.

In the political front, he said, there has always been smooth transfer of power. 

“The new President and Vice President—who belong to the same party — was overwhelmingly voted into office. Compare that with other countries,” he said.

For this reason, Diokno emphasized that the country’s economic prospects are bright. 

“The Philippines will probably be the fastest growing country in the ASEAN+3 region in the next two years; second fastest in the Asia Pacific region, after India,” he added.

Earlier, Diokno said the Marcos administration was not aiming to bring back the government’s pre-pandemic debt-to-GDP ratio of around 39 percent.

Instead, the goal is to just bring down the debt ratio below the international threshold of 60 percent, he said.

“Right now, national debt to GDP ratio as we expect it to be around 61.8 percent. It will be back to 61.3 percent by 2023 and then go down to 60.6 percent by 2024, and then 59.3 percent by 2025, 57.7 percent by 2026 and 2027 to 52.5 percent,” Diokno said.

“In other words, by the end of the Marcos years, we expect that national debt to GDP ratio to be below 60 percent,” he added.

According to Diokno, debt level of above 50 percent is not detrimental, citing the current global debt to GDP ratio is somewhere between 200 percent and 300 percent.