Economy

Sustained growth key to lowering debt-to-GDP ratio

PHILIPPINE STAR/ MIGUEL DE GUZMAN

THE GOVERNMENT is seen on track to bringing down the share of debt to gross domestic product (GDP) to 61.8% by yearend through sustained economic growth, debt management, and revenue measures.

“The target by the yearend is still achievable if GDP growth rate won’t fall below 6% despite escalating prices and continuously changing peso-dollar rate,” University of Asia and the Pacific Senior Economist Cid L. Terosa said in an e-mail.

Economic managers are aiming to bring down the debt-to-GDP ratio to 61.8% by yearend. This is higher than the 60% debt-to-GDP ratio considered manageable by multilateral lenders for developing economies, and significantly higher than the 39.6% seen at the end of 2019.

As of the second quarter, the debt-to-GDP ratio eased to 62.1%, from the previous quarter’s 63.5%.

“The easing of the debt-to-GDP ratio to 62.1% at the end of June was partly due to the fantastic GDP growth rate achieved by the country in the second quarter of 2022. I think a debt-to-GDP ratio of 62% by the yearend is achievable,” Mr. Terosa said.

He noted the government must sustain economic growth at a level above 6% if it hopes to lower the debt-to-GDP ratio.

Pantheon Chief Emerging Asia Economist Miguel Chanco said slower GDP growth may hinder the efforts to bring down debt levels.

“I think that a target of 61.8% by end-2022 for the national debt-to-GDP is still doable, but it won’t happen automatically. Just to be upfront, though, we currently have a below consensus real GDP growth forecast of 5.6% for this year, so our working denominator for nominal GDP will be very different from the government’s assumptions,” he said in an e-mail.

The National Government’s outstanding debt rose to a record-high P13.02 trillion at the end of August.

The Philippine economy expanded by 7.4% in the second quarter, bringing six-month GDP growth at 7.8%. The government targets 6.5-7.5% GDP growth for this year.

Mr. Chanco said if economic growth is weaker than expected, the government should pursue new revenue-generating measures and spending cuts to achieve lower debt levels.

Mr. Terosa said the government should ensure there is effective debt management.

“The government has to collect more revenues by ‘deepening’ the tax base and to increase revenues by ‘expanding’ the existing tax base. This will entail making government borrowing yield more productive results,” he added.

Economic managers are hoping to lower the ratio to 52.5% by 2028. — Luisa Maria Jacinta C. Jocson

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular

Your daily news source covering investing ideas, market stocks, business, retirement tips from Wall St. to Silicon Valley.

Disclaimer:

TheProficientInvestor.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice.
The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 TheProficientInvestor. All Rights Reserved.

To Top