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Government 2022 debt declines due to peso appreciation and economic growth

The national government’s (NG) total obligations by the end of 2022 will be worth PHP13.42 trillion less in pesos than they were last month because of the domestic economy’s ongoing recovery and the strengthening of the Philippine peso against the US dollar.

According to the Bureau of the Treasury (BTr), net redemption of domestic government securities also contributed to the full-year NG debt falling by PHP225.31 billion, or 1.7 percent, from PHP13.64 trillion by the end of November last year (GS).

However, NG debt increased from PHP11.73 trillion at the end of 2021 to PHP1.69 trillion, or 14.4%.

Domestic debt, which totaled PHP9.21 trillion last year, made up 68.62 percent of the overall debt.

Domestic debt decreased from PHP9.43 trillion at the end of November 2016 to PHP219.58 trillion, or 2.3 percent.

The net redemption of PHP217.95 billion in GS and the peso’s rise, which decreased the peso value of obligations denominated in foreign currencies by PHP1.63 billion each, were cited by BTr as the causes of the fall.

As of the end of 2022, NG liabilities totaled PHP4.21 trillion, or 31.38 percent of all liabilities, down PHP5.73 billion from the level at the end of November 2022.

Since the beginning of 2022, it has climbed by PHP652.34 billion, it stated.

According to BTr, currency changes brought on by the peso’s rise against the dollar resulted in a PHP58.34 billion decrease in foreign debt.

According to the report, the ratio of the country’s debt to GDP decreased as a result of the improvement in NG debt levels in December and the ongoing strong growth of the domestic economy.

The nation’s GDP increased by 7.2 percent in the last quarter of 2022 and by 7.6 percent for the entire year.

The ratio of NG liabilities to domestic output decreased from 63.7 percent at the end of the third quarter of last year to 60.9 percent as of the end of 2022. This ratio is below the 61.8 percent target in the government’s medium-term fiscal strategy.

This, the BTr stated, “reflects the persistent drive to strengthen debt sustainability through careful cash and debt management supported by rising economic development.”

Michael Ricafort, the chief economist at Rizal Commercial Banking Corp., stated that he anticipates that the impact of tax and other fiscal reform initiatives, as well as the continued expansion of the domestic economy, will favorably affect the ratio of debt to economic growth.

In a study released on Thursday, he stated that “more controlled government expenditure would assist further reduce/improve the debt-to-GDP ratio to below the 60 percent international threshold to help retain the country’s positive credit ratings at 1-3 notches over the minimum investment grade.”

According to Ricafort, the government’s plan to issue additional Retail Treasury Bonds (RTBs) in both pesos and US dollars as part of the program to raise funds for various government initiatives and projects will likely result in a further increase in public debt in the upcoming months.

He stated that in order to further enhance structural sources of government revenue, the government must “further strengthen tax revenue collections based on existing tax laws, come up with new taxes/tax reform initiatives, increase tax rates, among others.”

Through fiscal reform initiatives like right-sizing the government and anti-corruption/anti-leakage/anti-wastage measures, it can also embrace more restrained expenditure, he continued.

All of which, according to Ricafort, “would help further narrow/improve the budget deficit and, in turn, slow the growth/increment in the national government’s outstanding debt, as well as better prepare for the eventual repayment of the large debt/borrowings incurred during the pandemic as they become due in the future.”

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