Domestic Bonds

PH debt when Duterte left: 13,420 billion pesos


MANILA, Philippines — National government debt stock to hit new high of 13.42 trillion pesos by the end of 2022, even as next year’s gross borrowing is expected to be below 2.470 billion pesos in line with the narrower budget deficit program.

Documents on the proposed national budget of 5.024 trillion pesos in 2022 showed that the outstanding debt next year will increase further from the 11.730 trillion pesos scheduled by the end of 2021.

The debt-to-gross domestic product (GDP) ratio, which reflected a country’s ability to repay its bonds, is expected to peak in 16 years of 59.1% by the end of 2021 and reach 60.8% in 2022. The share of debt to the economy is expected to decrease to 60.7% in 2023 and to 59.7% in 2024.

The debt-to-GDP ratio stood at 60.4% at the end of June, slightly above the 60% threshold, which credit rating agencies considered a manageable level of government debt for emerging markets, while the government was borrowing more for its COVID-19 war chest.

The gross national government borrowing for 2022 will be lower than this year’s program of 3.07 trillion pesos. Borrowing for 2023 would decline further to reach 2 31 trillion pesos.

The government will continue to borrow more in the domestic debt market, with a share of 81% this year, 77% next year and 75% in 2023.

Gross external borrowing from Philippine bonds sold abroad as well as program and project loans from multilateral lenders and bilateral development partners would fall to 560.58 billion pesos in 2022 from 581.37 billion pesos This year.

Domestic borrowing mainly from the sale of treasury bills and bonds would also fall to P1.91 trillion next year from P2.49 trillion this year.

The budget documents did not specify the amount of the Bangko Sentral ng Pilipinas (BSP) short-term loan for 2022, but National Treasurer Rosalia de Leon said the national government “had not said there would be no more BSP loans – it depends. “

De Leon said the BSP facility was “still available” next year. This year, the national government took advantage of a zero-interest loan of 540 billion pesos from BSP.

De Leon attributed the smallest gross borrowing program of 2022 to reducing next year’s budget deficit, amounting to 1.6 trillion pesos, or 7.5 percent of gross domestic product (GDP).

This year, the budget deficit is expected to widen to a record 1.8 trillion pesos, or the equivalent of 9.3% of GDP, as tax revenues are expected to remain below what they were before the pandemic in 2019 , while government spending on public goods and services will increase. reach a record 4 744 billion pesos, or 23.9% of GDP, to fight the health and socio-economic crises inflicted by COVID-19.

To pay off the skyrocketing debt, the national government will pay off 1.29 trillion pesos in liabilities in 2022, up from 1.28 trillion pesos this year. Debt service next year will cover a larger principal amortization of 785.21 billion pesos plus 512.59 billion pesos for interest payments.

As the national government has borrowed more locally, it will also pay a larger amount of 104 trillion pesos to domestic lenders in 2022, while the remaining 253.82 billion pesos will be spent on external debt.

Last week, finance ministry officials said the Philippines would return to a more cautious budget deficit and debt, similar to pre-pandemic levels by 2024 or 2025 if the next administration adopts the measures proposed by the DOF, possibly including new or higher taxes. .

Deputy Finance Secretary Gil Beltran, also the DOF chief economist, told reporters that fiscal consolidation, or the return to the pre-pandemic budget deficit of about 3% of gross domestic product per year and a Debt-to-GDP ratio of less than 40%, would likely be reached in 2025 “because we expect the economy to soar” once strict COVID-19 lockdowns are dismantled.

The Cabinet-level Development Budget Coordination Committee (DBCC) forecast a budget deficit of 5.9 percent in 2023 and 4.9 percent in 2024.

Beltran said the Philippines’ macroeconomic fundamentals remain strong despite the protracted pandemic. “The factors of production are there. It’s just that they can’t move. Once you remove the restrictions, the economy will boom, ”he said.

While the DBCC last week reduced the GDP growth target for 2021 to 4-5% due to the threat posed to economic recovery by the more contagious variant of the Delta, it has maintained projections for 2022 and 2023. -2024 from 7 to 9% and from 6 to 7 percent.

Beltran said if the next administration was “as quick as this administration” in implementing reforms to raise revenues and pay down debt, fiscal consolidation could come sooner, by 2024.

At the same briefing, Finance Secretary Carlos Dominguez III said the Philippines was “in the lead – we were in the top” among peers with similar ratings, or countries with the same investment grade credit ratings. , to return to the economic levels of 2019.

“This pandemic has not destroyed the factors of production, it is just in quarantine. Once that is released, we will grow at a very, very healthy rate, ”he said.

The DOF was currently preparing what Dominguez had called a “playbook” of tax measures that would be recommended to Duterte’s successor.

Dominguez said he believes fiscal consolidation in the future will involve cutting spending to keep the budget deficit reasonable while increasing tax and non-tax revenue. “This period of fiscal consolidation is going to be quite difficult.

The Duterte administration had pledged not to impose new taxes or increase existing taxes due to more difficult times caused by the pandemic. Instead, he turned to privatization to raise more money to finance the larger budget deficit and pay off growing debts.

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