MANILA, Philippines — Bringing the Philippines’ debt back to pre-pandemic levels of around 40% of gross domestic product, from a peak of 63.5% of GDP at the end of March, will be difficult, according to ANZ Research.
In a report, ANZ said the rise in the Philippines’ debt level was justifiable given the current expansionary fiscal stance due to the impact of the pandemic.
“Although fiscal policy becomes more conservative, getting debt back to pre-pandemic levels of around 40% will be difficult,” the research unit said.
Although the Philippines aims to reduce the debt-to-GDP ratio to 60.8% by the end of 2022, ANZ said weaker nominal GDP could make the debt curve steeper.
According to ANZ, the latest official estimate of nominal GDP for 2022 is 1.8% below the target of 22.1 trillion pesos.
“All else equal, this alone could increase the year-end debt-to-GDP ratio by around 1.1 percentage points. We also note the sharp increase in the debt service burden since 2020,” a- he declared.
The research firm said the interest payments-to-income ratio could hit 15.5% this year, up from 11.5% in 2019, and could rise further given steadily rising interest rates.
Estimates suggest that for every percentage increase in interest rates, debt servicing costs increase by about 0.5%.
“Meanwhile, the gap between growth and interest rates, an important determinant of debt sustainability, is also expected to narrow as economic growth stabilizes amid rising borrowing costs. “, said ANZ.
The Marcos administration is expected to stick to the budget expenditure proposed by the previous administration of about 5.3 trillion pula for 2023, or 22.2% of GDP.
The 2023 budget projects a modest 2.6% growth in disbursements, down from increases of 11.5% in 2022 and 9.9% in 2021 amid reduced COVID-related allocations.
ANZ said Finance Secretary Benjamin Diokno had also hinted the government may not extend existing fuel support measures next year.
“The 2023 budget framework reflects the shift in focus from post-pandemic support to structural drivers of growth, and even includes provisions for sustainable environmental goals,” ANZ said.
He said the Build Build Build program would likely remain high on the agenda, with a projected allocation for infrastructure programs of 5.4% of GDP, slightly lower than the 5.5% projected in 2022.
Next year’s revenue is expected to grow by 10%, slightly more than the projected nominal GDP growth of 9.6%, translating into a revenue-to-GDP ratio of 15.3%.
In total, the government is targeting a budget deficit of 6.1% of GDP, a significant reduction from the 7.6% projected in 2022.
“According to the latest projections from the Development Budget Coordinating Committee, the budget deficit will return to its pre-pandemic trajectory of below 4% by 2026,” the ANZ said.