Gov’t eyes debt-to-GDP ratio of below 45% by 2016

MANILA, Philippines – The Aquino administration is aiming to cut the ratio of the national government’s outstanding debt to the country’s gross domestic product (GDP) to below 45% by 2016.

Department of Budget and Management (DBM) Secretary Florencio Abad said in his presentation during the Development Budget Coordination Committee’s 2015 budget hearing that the outstanding debt of the national government is seen to further decline – from 62.7% in 2005 and 51.7% in 2010 to 45.6% in 2015 and below 45% in 2016.

The debt-to-GDP ratio is one of the indicators that credit rating agencies look at when evaluation the country’s credit worthiness. A low debt-to-GDP ratio shows the country is producing enough and unlikely to default on its debts.

In nominal terms, the national government’s outstanding debt is expected to reach P6.5 trillion ($148.49 billion) by the end of next year.

In comparison, the outstanding debt for this year is seen hitting P6.32 trillion ($144.37 billion) or 47% of GDP.

Finance Secretary Cesar Purisima said during the budget hearing that they hope to trim the debt ratio to a manageable level.

“We would like the debt-to-GDP-ratio to fall to this level, which is better than our neighbor countries,” Purisima said. “Our goal is to bring down the national government debt to below 45% of GDP by 2016.”

Earlier, the Department of Finance said that as of end-2013, the country’s general-government-debt-to-GDP ratio improved by 1.4 percentage points (ppt) from the previous year and 0.5 ppt from the previous quarter to 39.2%.

The improvement in this ratio was driven mainly by the 2.3-ppt year-on-year improvement in the national government debt to GDP. The bond sinking fund balance declined by 2.2% year-on-year to P748 billion ($17.06 billion).

“The Aquino administration continues to exercise prudence in its economic programs and policies,” National Treasurer Rosalia De Leon said.

“The improvement in our debt metrics and its effect on the stability of the economy and improved fiscal space are mainly caused by the administration’s proactive liability management agenda and corporate governance reforms. This healthy trend was a major component in the investment grade rating we got last year,” De Leon added.

In end-2009, prior to the Aquino administration, GG debt was at 44.9% of GDP, which marked an improvement of 5.7 ppt over the course of the administration. – Rappler.com

*($1 = P43.84)