Finance Secretary Benjamin Diokno believes the Marcos administration could trim down the debt level to 52.5 percent by the end of its term in 2028
The Philippines is among the many countries in Asia and globally that face tough choices with less flexibility to sustain economic growth while facing severe challenges to reverse the economic impact of the Covid-19 pandemic.
A new report by credit watchdog Fitch Ratings said only a few economies have managed to check the damages of the pandemic to public finances. The high levels of government debt-to-GDP (gross domestic product) ratio could lead them vulnerable to recession risks.
The Philippines’ debt-to-GDP ratio stood at 63.5 percent at the end of the first quarter. The figure surpasses the 60 percent threshold considered by many economists and multilateral lenders for developing countries as manageable.
This debt level is nearly double the 39.6 percent debt-to-GDP ratio recorded as of the end of 2019 or before the Covid-19 pandemic.
Compared to the rest of the world, the Philippines’ debt level position worsened in 2021 in terms of GDP percentage. The country is currently ranked number 94 in the list of debt-to-GDP and 76 in debt per capita, out of the 190 sovereigns.
The Covid-19 saw a surge in borrowings by the Duterte administration to fund its pandemic war chest. As of April, the Philippines’ debt pile expanded to a record P12.76 trillion.
Indeed, before passing the baton of the finance portfolio to his successor, former Finance Secretary Carlos Dominguez III said the Philippines needs at least 10 years before our debt-to-GDP ratio would return to its pre-pandemic level of 40 percent.
But a confident Finance Secretary Benjamin Diokno believes the Marcos administration could trim down the debt level to 52.5 percent by the end of its term in 2028, expecting the debt-to-GDP ratio to decline to 61.8 percent this year and further slide to 61.3 percent in 2023. He is forecasting the ratio to settle at 60.6 percent by 2024.
The Philippines’ debt-to-GDP ratio stood at 63.5 percent at the end of the first quarter.
With the number of external shocks, including the Ukraine war, supply chain disruptions, rising fuel prices, inflation acceleration, weakening exchange rates and high policy interest rates, this administration’s financial manager must remain sensitive to economic pressures to maintain the country’s growth trajectory and avoid a possible recession.