Philippine Debt Reaches P12.89 Trillion by the End of July

MANILA, Philippines — Due to additional local and foreign borrowings and a weak peso, the national outstanding debt reached a new high of P12.89 Trillion in July, inching closer to the P13-trillion threshold.

The latest data from the Bureau of the Treasury (BTr), released on Saturday, showed that as of July, outstanding obligations rose by 0.8% from P12.79 trillion in June and 11% from P11.61 trillion a year ago.

Finance Secretary Benjamin Diokno told lawmakers last month that the Department of Finance (DOF) initially assumed that the amount of debt at the end of July was 62.1% of gross domestic product (GDP).

The debt-to-GDP ratio is presumed to be the most accurate indicator of an economy’s ability to repay its debts. The 60 percent public debt-to-GDP ratio was deemed manageable by credit rating agencies for emerging markets such as the Philippines.

The government anticipates the debt-to-GDP ratio to reach 62 percent, a 17-year high, by the end of the year, equating to a record P13.43 trillion in debts. Domestic debts, which accounted for 68.5% of the total, increased by 0.7% month-over-month and 8.8% year-over-year to P8.83 trillion.

The BTr said local borrowings from treasury bills and bonds minus maturities totaled P64.33 billion in July. The government borrows more from local creditors to reduce foreign exchange risks and take advantage of a liquid financial system. 

The weaker peso increased domestic debt by P 740 million. The end-July peso-dollar exchange rate was 55.322, down from 54.97 in June. External debts rose 0.8% monthly and 16.2% annually to P4.06 trillion. 

Peso depreciation added P25.77 billion to foreign debt, while a net of P6 billion was borrowed from overseas creditors, including bilateral development partners and multilateral lenders offering concessional or low-interest loans. 

Meanwhile, on Friday, the peso hit a record low of P56.77 per dollar, likely inflating debt figures.

Rizal Commercial Banking Corp. chief economist Michael Ricafort stated that while government debt has continued to rise monthly, the rate is already half what it was during the pandemic.  Since 2020, cash assistance and vaccines have added about P2 trillion per year to the debt pile. The previous administration had to resort to loans because of the economic downturn and mobility restrictions.

Ricafort urged increased tax collections and tax reform. He said fiscal reforms like disciplined spending, right-sizing the government, preventing wasteful spending, and anti-corruption measures are needed to reduce the debt. The country’s debt level decreased to 62.1 percent of GDP in the second quarter from 63.5 percent in the first. This ratio remains above the internationally accepted threshold of 60%, putting the Philippines at risk of being unable to pay its debts.

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