Core government debt or obligations contracted by the national government as percent of local output or the GDP marginally rose in the final three months of last year and likely to keep expanding from this point forward, according to the Department of Finance (DOF).
But the agency quickly emphasized that while the indicator appears to have reverted to its old expansive ways in the past, the debt-to-output ratio is actually stabilizing, especially if appreciated over the medium term.
The DOF said ratio stood at 42.1 percent of GDP in the final three months of 2017, slightly up from only 41.7 percent one quarter earlier.
This was because all that spending has been applied mainly against the government’s very ambitious infrastructure buildup program, dubbed as the “Build, Build, Build” (BBB) initiative of President Duterte.
The national government debt-to-GDP ratio is adjudged to be stable as at end-2017 at 42.1 percent as nominal GDP surged by 9.1 percent.
“From a high of nearly 75 percent in 2004, the debt-to-GDP ratio was drastically reduced to below 45 percent, owing to prudent debt management, fiscal discipline and economic growth. The economy has been outgrowing its debt in the past years, meaning, the country’s capacity to service its debt is improving,” Finance Undersecretary Gil S. Beltran said.
In an economic bulletin issued by the DOF last November, Beltran said the debt-to-GDP ratio dropped to 41.7 percent in the third quarter of 2017, from 42.4 percent in the previous quarter and from 43 percent in the third quarter of 2016.
“In the short-term, the government’s Build, Build, Build program may exert upward pressure on the debt stock. In the medium- to long-term, however, a sustainable high economic growth rate [brought about by better infrastructure] will outrun the growth of debt,” he said.
The DOF previously said some 70 percent of the incremental revenues from the Tax Reform for Acceleration and Inclusion (TRAIN) Act have been set aside for infrastructure and up to 30 percent for social services, including unconditional cash transfers of P200 a month for 10 million poorest households this year.
Such should rise to P300 a month in 2019 and 2020.
According to Beltran, the majority of the 75 flagship projects under the BBB program worth a combined P1.8 trillion are already in the construction or preconstruction phases and this partly explains the apparent uptick in the debt-to-GDP ratio.
The big-ticket infrastructure projects include the P23-billion Metro Manila Flood Management Project, which is co-funded by the Asian Infrastructure Investment Bank and the World Bank; the P151-billion Philippine National Railways South Long Haul Line to be financed by official development assistance (ODA) from China and the P355.6-billion Mega Manila Subway funded by Japan.
Finance Secretary Carlos G. Dominguez III said the P19.8-billion Davao City Bypass Road, another flagship project, is also in the implementation phase.
Dominguez expects the BBB program to shift to high gear this year with the rollout of the first set of big-ticket infrastructure projects and the implementation of the TRAIN.
“Let me just point out that our debt as a percentage of our GDP has been on a steady decline. When we took over, it was something like 43 percent. Even though we borrowed more during the interim from when the time this new administration took over, the debt as percentage of GDP is now just slightly over 41 percent. And we can see that declining over the years,” Dominguez said.
About a fourth of the capital needed for the P8.44-trillion infrastructure modernization program will come from TRAIN revenues, while the rest will be funded by ODA loans.