Despite the multi-trillion peso borrowings amid the prolonged-pandemic, the Philippine government’s risk of falling into a debt crisis remains low, the ASEAN+3 Macroeconomic Research Office (AMRO) said.
According to the regional think tank, the likelihood of the government falling into debt distress is still low, noting that the interest rate on sovereign debt is at a moderate level.
ARMO also noted that the weighted average interest rate on government bonds is generally below the real growth rate.
Moreover, the national government has financed its borrowing predominantly from domestic savings in banks, insurance companies, and mutual funds, AMRO added.
“The required reserve ratio is still relatively high at 12 percent and about P1.6 trillion of excess liquidity is invested in short-term instruments of the BSP , including the TDF and repos, which can be reinvested in government bonds,” it said.
In addition, AMRO said the share of nonresident holdings of government securities is less than two percent, which makes the domestic bond market less vulnerable to a sell-off by foreign investors.
“Lastly, the government is mindful of potential fiscal risks from rising debt levels and continues to exercise prudence in debt management and fiscal policies,” AMRO said.
Since 2019, the total debt of the national government ballooned from just P7.731 trillion, or 39.6 percent of gross domestic product (GDP). Its debt ratio hit a 17-year high of 63.5 percent last year.
But despite higher debt, Finance Secretary Benjamin E. Diokno said the Philippines continued to be faring well, adding that the nation’s economic fundamentals should also be considered in determining credit risk.
“The economic fundamentals of the country should be considered,” Diokno said.
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.