As movement restrictions are eased, an economist predicts that the government debt-to-gross domestic product (GDP)…
In order to avoid increases in the debt-to-GDP ratio, fiscal consolidation is required.
MANILA, Philippines — During the pandemic, the Philippines’ debt-to-gross domestic product (GDP) ratio rose above the international acceptable 60 percent threshold, which is acceptable as long as fiscal consolidation is followed.
According to a study by a team from the Philippine Institute for Development Studies (PIDS) titled “Fiscal effects of the Covid-19 pandemic: Assessing public debt sustainability in the Philippines,” the country’s debt is sustainable because the government maintains cash buffers and because the increase in the proportion of debt to domestic output was primarily due to the pandemic.
The study’s principal author, PIDS research fellow Margarita Debuque-Gonzales, said decreasing liabilities is possible but should not be the immediate goal in a briefing before Department of Finance (DOF) officials on Wednesday.
Instead, she says, the focus should be on developing a viable medium- and long-term fiscal consolidation strategy.
In an interview with journalists, Debuque-Gonzales said the economic team needs a fiscal consolidation plan to support the economy’s sustained recovery, which increased to 8.3 percent in the first quarter of 2022 from 7.8 percent the previous quarter and -3.8 percent the year before.
She stated that the government is on the right track because it is concentrating on sustaining economic recovery.
“The focus will be on administration in terms of fiscal consolidation. To put it another way, being able to collect more, improve collections, and increase administrative efficiency. “That will be the focus,” she stated.
The government’s fiscal deficit as a percentage of domestic GDP climbed to 7.6% during the pandemic, after reaching a new low of 3.4 percent in 2019.
This was mostly due to increased borrowings, which allowed the government to provide pandemic-related relief initiatives while also ensuring the infrastructure program’s continuing implementation.
According to the analysis, the national government’s debt-to-GDP ratio will peak at 66.8% in 2023 before progressively declining in the following years.
“From 2024 to 2027, it is expected that the country would undertake efforts toward fiscal consolidation, keeping a primary deficit of 1.7 percent of GDP,” it stated.
The primary deficit is the sum of liabilities minus interest payments.
The government borrowed PHP3.2 trillion to deal with the outbreak.
The growth in the country’s debt-to-GDP ratio, which climbed at 60.5 percent in 2021, “doesn’t really imply anything,” Debuque-Gonzales said.
“So, it’s basically the government’s and economic managers’ job to show credit raters that we’re still great even at that rate, and we’ll gradually reduce it and you can count on us.” As a result, the market will be somewhat calmed,” she explained.
“The message we’re sending is that you can’t just get back to pre-pandemic debt levels.” You don’t have to insist on returning,” she continued.