Gov't debts sustain dizzying rise to record P11.61-T in July

MANILA, Philippines — The government’s debts sustained their ascent in July to hit a new record high, as the Duterte administration continues its borrowing binge to fund its coronavirus programs.

The state’s outstanding liabilities stood at P11.61 trillion in July, up 4% on a month-on-month basis, the Bureau of the Treasury said on Tuesday. Since the beginning of the year, the debt load has gotten heavier by P1.82 trillion.

The dizzying accumulation of debts was necessary to bridge a budget deficit that is forecast to hit 9.3% of gross domestic product this year. For Nicholas Mapa, senior economist at ING Bank in Manila, the continued growth of debts would make the Philippines a candidate for credit rating downgrade.

“With the deficit likely to persist in the second half, we can only get expect the debt levels to swell as well,” Mapa said in an e-mailed response to queries.

At least one major credit rating agency has already gave the Philippines a stern warning about how failure to control the spread of coronavirus could cost its hard-won investment grade, which allows both the government and Philippine companies to borrow money offshore at much cheaper costs. In July, Fitch Ratings revised its outlook on the Philippines from “stable” to “negative”, meaning the country is at risk of seeing its first credit rating downgrade in 16 years if the pandemic continues to weigh on the state’s balance sheet.

The Duterte administration has tried to protect the country’s investment grade by “preserving fiscal stamina”, a strategy that was roundly criticized amid calls for massive government spending to cushion the impact of disruptive lockdowns on the economy.

Dissecting the Treasury’s report, domestic debts, which accounted for 69.9% of total liabilities, inched up 2.3% month-on-month to P8.12 trillion due to “net issuance of government securities” like T-bonds and T-bills.

External obligations, on the other hand, went up 8.2% month-on-month to P3.49 trillion because of “net availment of foreign loans”, which included the P146.17 billion proceeds from the government’s global bonds sale in late June. A weak peso likewise pushed up the value of the government’s offshore debts.

Debts will continue to build up as the Philippines’ pandemic needs grow. Already, economic managers expect the government’s outstanding obligations to hit P11.73 trillion by the end of the year, before growing to P13.42 trillion by end-2022, when a new administration would have taken over.

As a share of the economy, obligations for this year are forecast to go up to the 60% threshold where debt watchers begin to worry. It is only in 2023 when debts are expected to “start its downtrend”, economic officials said.

“I think we had breached the 60 percent threshold as of March and we will likely finish the year above this important threshold, with the country susceptible to a credit rating downgrade from one of the credit rating agencies,” ING Bank’s Mapa said.