July 23, 2021

Changes in PH strategy in response to debt increases are required, according to economists

To avoid future credit rating downgrades, an economist has recommended that the government rethink its approach for dealing with increasing debt during pandemic-related expenditures.

This comes after Fitch Ratings recently altered its outlook on the country’s investment-grade rating, which was confirmed at BBB, from stable to negative.

Debt raters are now likely looking at the potential scarring effects of the epidemic on economic activity “and how sluggish growth could impact the overall fiscal health of the nation,” according to Nicholas Mapa, the senior economist at ING Bank Manila.

“From this forecast, it is apparent that debt watchers are becoming more worried about the Philippines’ medium-term development prospects, implying that the country’s so-called “strong fundamentals” are being called into doubt. Perhaps the once strong consumer mad, investment renaissance economy is now just something that was ‘so 2019′,” he added, with only base effects providing impetus for 2021 GDP (gross domestic product) growth.

Economic managers have guaranteed that the budget deficit does not rise beyond 60% of GDP, ensuring that debt levels do not become unsustainable.

This, according to Mapa, is due to economic managers’ determination “to reduce the deficit.”

“Authorities claim that the ostensible austerity was implemented to guarantee budgetary sustainability and to ensure that we had ‘enough ammunition to fight’ what was expected to be a long war,” he added.

However, according to Mapa, this has resulted in GDP growth falling by 9.5 percent in 2020, the deficit-to-GDP ratio increasing rapidly to 9% in the first quarter of 2021, and the total debt-to-GDP ratio going over the crucial 60% barrier that ratings agencies are “carefully watching.”

“As credit downgrades, which they so carefully avoided, loom, authorities may need to rethink their present debt-to-GDP reduction strategy,” he added. “Perhaps a new gameplan may be explored in order to pursue quicker growth.”

Faster growth, he said, creates income streams and employment.

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