NextGen Day

As movement restrictions are eased, an economist predicts that the government debt-to-gross domestic product (GDP) ratio will improve in the coming months, implying fewer support programs and higher state revenues.

Michael Ricafort, chief economist of Rizal Commercial Banking Corporation (RCBC), said in a report dated November 25 that the country’s debt to annual output ratio rose to 63.1 percent in the third quarter of this year, exceeding the 60-percent international threshold.

According to Ricafort, the rising share of liabilities in domestic output makes “additional stimulus measures more difficult at the moment unless new sources of new government revenues are found to fund them.”

He said that exceeding the international debt-to-GDP ratio threshold would make fiscal or debt management less sustainable in the long run and that it “could have adverse effects on the country’s relatively favorable credit ratings and outlook, which largely defied the Covid-19 (coronavirus disease 2019) pandemic, which resulted in downgrades in other countries around the world.”

“Structurally, a faster economic recovery that effectively increases the GDP base would help address/cure this in the coming months/years (similar to what has been seen over the last decade or so),” he added, “along with fiscal reform measures aimed at increasing the government’s recurring tax revenue sources, especially if economic conditions improve further.”

The domestic economy grew by 7.1 percent in the third quarter of this year, marking the second consecutive quarter of positive growth after a 12 percent contraction in the previous three months and the fifth consecutive quarter of contraction since the first quarter of 2020.

Ricafort cited the “need to prudently use the government’s financial resources and ensure there would be enough in the coming months/years, given the uncertainties on how long the Covid-19 pandemic would linger and continue to have adverse effects on the economy, especially on the most vulnerable sectors,” as well as the “need to prudently use the government’s financial resources and ensure there would be enough in the coming months/years.”

“The more structural and long-term solution is continued economic re-opening, which increases the capacity, production, sales, income, employment/livelihood of many businesses and industries while also assisting the government in increasing tax revenue collections,” he said.

Ricafort, on the other hand, stated that “this would be justified” if the number of new Covid-19 cases in the country continues to decline, as well as the arrival of more virus vaccines and people’s continued adherence to health protocols.

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