PH’s risk of sliding into debt crisis remains low—AMRO – Manila Bulletin


Despite borrowing trillions of pesos amid the protracted pandemic, the risk of the Philippine government 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 lower than the real growth rate.

Moreover, the national government financed its borrowing mainly from domestic savings from banks, insurance companies and mutual funds, AMRO added.

“The reserve requirement ratio is still relatively high at 12% and about 1.6 trillion pesos of excess liquidity is invested in short-term BSP instruments. [Bangko Sentral ng Pilipinas]including TDF [Term Deposit Facility] and pensions, which can be reinvested in government bonds,” he said.

Additionally, AMRO said the share of non-residents’ holdings of government securities is less than 2%, making the domestic bond market less vulnerable to a sell-off by foreign investors.

“Finally, the government is aware of the potential fiscal risks associated with rising debt levels and continues to exercise caution in debt management and fiscal policies,” AMRO said.

Since 2019, total national government debt has fallen by just 7,731 billion pesos, or 39.6% of gross domestic product (GDP). Its debt-to-equity ratio hit a 17-year high of 63.5% last year.

But despite higher debt, Finance Secretary Benjamin E. Diokno said the Philippines continued to do well, adding that the country’s economic fundamentals should also be taken into account when determining credit risk.

“The economic fundamentals of the country must be taken into account,” Diokno said.

Earlier, Diokno said the Marcos administration did not aim to bring the government’s pre-pandemic debt-to-GDP ratio down to around 39%.

Instead, the goal is simply to bring the debt ratio below the international threshold of 60%, he said.

“Right now, the national debt-to-GDP ratio, as we expect, is around 61.8%. It will fall back to 61.3% by 2023, then drop back to 60.6% by 2024, then to 59.3% by 2025, 57.7% by 2026 and 2027 to 52.5% said Diokno.

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

According to Diokno, a debt level above 50% is not harmful, citing the current global debt-to-GDP ratio of between 200% and 300%.




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