Debt-to-GDP ratio up to 51.4% in 2012

MANILA, Philippines - The government’s outstanding debt as a proportion of the country’s gross domestic product (GDP) increased last year, dealing a minor blow to the country’s goal of hitting the international benchmark for investment grade.

Data from the Bureau of Treasury (BTr) showed that the government’s debt in relation to the economy, one of the closely monitored indicators of a country’s credit standing, hit 51.4 percent in 2012 compared with only 50.9 percent the previous year.

This is seen as a setback since the ratio, computed by dividing outstanding debt by the country’s GDP, has been on a downward trend since its peak of 84 percent in 2004 when the country was said to be on the verge of a financial crisis.

The country’s outstanding debt stood at P5.437 trillion last year, up 9.8 percent from P4.95 trillion in 2011.

Data from the National Statistical Coordination Board, on the other hand, showed that the economy was worth P10.568 trillion in 2012.

The 2012 ratio, however, was well above the government’s target of 50.2 percent, just a bit short of the 50 percent target.

International standards provide that debt-to-GDP ratio should be 50 percent or less for it to be considered manageable.

While credit rating firms have acknowledged improvements in some of the country’s macroeconomic indicators such as its huge reserves of foreign currencies and a robust banking sector, the debt-to-GDP ratio has remained an impediment to achieving investment grade status.

Debt-to-GDP ratio is one of the indicators used by credit-rating agencies in assessing a country’s ability to service its obligations or its creditworthiness.

Since President Aquino assumed his post, the Philippines has received eight credit rating and outlook upgrades from international agencies. Current ratings for the Philippines are BB+ from Fitch and Standard & Poor’s and BA1 from Moodys, putting it only a notch below investment grade.

Securing the much coveted investment grade status is seen to translate to more investments in the country and additional jobs.

The government is keen on getting an investment grade for the country this year on the back of a robust economy, steady remittances from overseas workers, a growing call center industry, strong domestic consumption and a low interest rate environment.

President Aquino’s efforts to contain debt, curb corruption and undertake massive infrastructure projects have boosted investor confidence in the Philippines as seen in the deluge of foreign funds being poured into the stock market.