Government debt soared to a record high in July, driven by the depreciating peso against the US dollar that contributed to the double-digit rise in foreign obligations.
Data from the Bureau of the Treasury, released on Wednesday, Sept. 3, showed that the national government's outstanding debt reached P15.689 trillion, a 10 percent increase from P14.244 trillion the previous year.
Month-on-month, government debt inched up by 1.3 percent from P15.483 trillion in June.
At end-July, the debt composition was 68.54 percent domestic and 31.46 percent external.
Foreign debt totaled P4.936 trillion during the month, 11.4 percent higher compared to P4.431 trillion in the same period last year.
The rise in external debt was attributed to project loans, which surged 15 percent year-on-year, alongside peso depreciation.
In July, the peso averaged P58.488 against the greenback, weaker than the P54.834 rate a year earlier.
Since the start of the year, external debt of the national government has increased by 7.4 percent from P4.598 trillion at the end of December 2023.
Government domestic debt also increased by 9.6 percent to P10.753 trillion in July from P9.812 trillion in the same month last year.
Based on the treasury data, this growth in local debt was primarily driven by a 9.6 percent rise in the sale of government securities.
Compared to the end of December 2023, domestic debt has increased by 7.3 percent from P10.017 trillion.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort stated that relatively high inflation has inflated government expenditures, coupled with elevated interest rates and a weaker peso since 2022.
Ricafort said this situation has increased debt servicing costs and heightened the national government's borrowing needs, resulting in a rise in government debt.
“For as long as the national government debt-to-GDP [gross domestic product] ratio would be close or even reduced to below the international threshold of 60 percent of GDP (from 60.9 percent in 2Q 2024), this would help sustain the country’s favorable credit ratings,” he said.
However, Ricafort said that tax and fiscal reform measures are still necessary, along with intensified tax collection efforts, stricter enforcement of tax laws, and targeted actions against tax evasion.
Additionally, he said that implementing more disciplined government spending along with anti-wastage, anti-leakage, and anti-corruption measures could help reduce the budget deficit and slow the recent surge in the national government's outstanding debt.
“New and higher taxes could be a final option if inflation eases/improves further in an effort to bring down the NG debt-to-GDP ratio to below the international threshold of 60 percent,” he concluded.
Earlier, Finance Secretary Ralph G. Recto downplayed the government’s increasing debt, stating, “There is nothing inherently wrong with a country having debts.”
“As long as the money is used for the right purposes such as growing the economy, which in turn, creates more jobs, increases income, and provides more revenues for the government,” the finance chief said.
In the second quarter, the proportion of the country's outstanding debt relative to its overall economic output returned to its post-pandemic peak.
Despite a higher growth rate, the GDP failed to keep pace with the government's borrowing, leading to a rise in the debt-to-GDP ratio to 60.9 percent from 60.1 percent in the previous quarter.
Based on the Treasury data, the debt ratio in the second quarter matched the full-year 2022 record of 60.9 percent, a figure cited by Recto during the budget hearing last month as the "post-pandemic peak." (Derco Rosal)