Government debt ratio improves in Q3

MANILA, Philippines - The broadest measure of the government’s debt standing inched up in the third quarter from the previous three months, but remained down from last year.

In a statement yesterday, the Department of Finance said the general government debt accounted for 36.8 percent of gross domestic product (GDP) as of September.

The figure was up slightly from 36.2 percent as of end-June, but was still an improvement from 37.2 percent in the same period a year ago.

General government debt is a wide measure of debt levels across the bureaucracy, including that of the National Government, local governments, and social security institutions such as the Social Security System and Philippine Health Insurance Corp.

A lower ratio indicates the government is generating more resources than debts, giving it more payment capacity. GDP is the sum of all goods and services gauging economic output.

Based on DOF figures, the decrease in the ratio could be traced from faster economic growth than debt accumulation in the first nine months.

In absolute amounts, general government debt rose 5.1 percent to P4.8 trillion from P4.6 trillion last year. GDP grew a faster 5.8 percent during the period.

“Keeping this ratio down is part and parcel of our commitment to keeping the Philippines resilient. We can expect the downtrend to persist further,” Finance Secretary Cesar Purisima said.

In an e-mail before the statement was released, Mervyn Tang, associate director at Fitch Ratings, said the current debt level bodes well for the country’s credit rating.

Fitch is the only major debt watcher which rates the Philippines BBB-, the lowest investment grade. However, it recently placed it on a “positive” outlook with potential for upgrade over the next 12 to 18 months.

A higher credit standing means the Philippines is able to borrow money at lower interest.

“The level of general government debt-to-GDP ratio, based on Fitch’s calculation, is lower than Malaysia and Vietnam, but higher than Thailand and Indonesia,” Tang said.

“From a rating perspective, public debt is slightly lower than the median of ‘BBB’ rated countries in 2014 (42.5 percent),” he added.

According to the DOF, the debt stock rose because of an additional NG and LGU debts from January to September.

Broken down, NG debt rose by an aggregate P238 billion with local and foreign obligations up 4.9 percent and 4.5 percent, respectively.

The DOF said domestic NG debt rose due to higher issuances of government securities, while their foreign counterparts rose due to peso depreciation.

A weaker peso, which lost around five percent this year against the dollar, drives debtors to shell out more local money to pay for their debts in other currencies.

Meanwhile, LGU debts rose 1.4 percent as of September due to “higher loan availments,” the agency said.

“Continued strong GDP growth allows the government to operate with a small deficit yet still keep the debt-to-GDP ratio on a gradual downward trajectory,” Tang said.