IT may take as long as another decade for the Philippines to bring down its debt-to-GDP ratio to prepandemic levels, according to some economists, but others are optimistic, given the country’s strong financial position to repay its debts.
Economists told the BusinessMirror that from the global financial crisis (GFC), the country also took this long before finally achieving its record-low debt-to-GDP ratio of 39.6 percent in 2019.
Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion recalled that during the GFC more than a decade ago, the country’s debt as a share of GDP was about 50 percent, almost the same level the country is in right now due to the Covid-19 pandemic.
The Philippines ended 2020 with a 14-year-high debt-to-GDP ratio of 54.5 percent, posting outstanding debt of P9.795 trillion. The government even expects this to rise to 57.8 percent this year and 58.5 percent next year, though still lower than the 60 percent internationally recommended debt threshold.
“I don’t want to be pessimistic, but, looking at this historical evidence, it might take us about 10-11 years before we can return to a pre-pandemic ratio,” Asuncion said in a message.
Debt-to-GDP ratio is used to gauge a country’s ability to repay its debts.
Strong financial position
However, Asuncion believes the government is in a strong financial position to repay its debts, adding that there is still a possibility that the country may be able to bring back the pre-pandemic level faster than he expected.
“It may be faster and it may depend on how the next administration will maneuver the next coming years,” he added.
He said the government can reduce its debt-to-GDP ratio faster by imposing additional taxes and implementing better budget processes which were done in the previous administrations.
While the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill will result in collection shortfalls for the government with the reduction in corporate income tax rate, he said this will help the economy in the long run as it will make the country more attractive as an investment destination.
He also hopes the government’s debt consolidation plan “can quicken the way” to prepandemic debt-to-GDP ratio.
For John Gokongwei School of Management Dean Luis F. Dumlao, the Philippines will likely take nine years to do so.
“It took us nine years [2011 to 2019] to lower our debt-to-GDP ratio to 39.6 percent. It will likely take the same nine years before we get our pre-pandemic rates,” he said.
To do this, Dumlao said the country’s GDP growth must be faster than the growth of its debt.
“Just as we did before, we grow the debt but we grow GDP at a faster rate. In that sense, we lower the debt-to-GDP ratio not by paying debt but by outgrowing the debt,” he said.
However, Dumlao said a debt consolidation plan will not really reduce debt.
“There is no magic in shuffling money. Consolidating might simplify the administration and accounting of debt. But it does not affect the total amount of debt to be paid,” he said.
Optimistic view
Meanwhile, De La Salle University economist Maria Ella Oplas took a more optimistic view, saying she expects to see the country hitting once again its prepandemic debt-to-GDP level in three to five years.
“I am leaning on the optimistic side, but of course the debt will not yet stop. Election time is coming and I see politicians exploiting the situation, so tataas pa ’yan [that will still rise],” Oplas told the BusinessMirror.
Like Asuncion, Oplas believes economic growth that may result from the efficient implementation of CREATE will help the government reduce its debt-to-GDP level.
Aside from CREATE, Oplas hopes the administration’s “Build, Build, Build” program will bring in the much-needed investments.
DOF: No fixed timeline
Finance Undersecretary and Chief Economist Gil S. Beltran believes it is hard to say when the government can return to prepandemic debt-to-GDP level.
“[It] depends on fiscal policy and how the virus situation will unfold,” Beltran told the BusinessMirror.
Nonetheless, he expressed confidence that the government would still be able to pay its loans, including the $1.2 billion extended by multilateral lenders for the country’s vaccination program and other pandemic response measures.
“Even during the worst of times [1980-1975], we continued to pay our obligations. Now that we are much better off with BOP [balance of payments] in surplus and GIR (gross international reserves) amounting to over $100 billion, the more that we can afford to pay. We’ll make sure that NG [national government] debt does not exceed 60 percent, the level at which debt remains sustainable,” he said.
Finance Undersecretary Mark Dennis Y.C. Joven, who also heads the department’s International Finance Group, said they are ensuring that the country’s debt-to-GDP ratio will be in the “middle of the pack” in the Asean region.
“We are also working towards concessional interest and longest tenor possible. We have to consider vaccination as a top priority to open the economy,” Joven said.
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