PHL to begin ‘working down’ debt by 2022, says DOF chief

PHILIPPINE officials are eyeing to begin winding down the country’s debt next year, according to Finance Secretary Carlos G. Dominguez III.

Speaking before key government officials and business leaders from Japan, Dominguez on Wednesday said that while the country’s debt-to-GDP ratio climbed to 63.1 percent in the third quarter of this year, this is still “sustainable” given that most of the borrowings are sourced from the domestic market.

Dominguez attributed the rise in the country’s debt as a percentage of GDP to the unexpected costs of the pandemic and lower revenue collection due to the lockdowns.


“The stability of the peso indicates this. We expect to begin working down our debt by next year,” he said during the virtual Philippine Economic Briefing.

The national government’s outstanding debt as of end-September this year ballooned to another record high of P11.92 trillion, already breaching the government’s expected level of debt stock of P11.73 trillion by the end of this year. This was also higher by 27.2 percent or P2.55 trillion than P9.37 trillion in the same period in 2020.

Earlier this year, the Department of Finance projected the debt-to-GDP ratio to settle at 59.1 percent by year-end and peak at 60.8 percent by 2022—slightly higher than the 60 percent internationally accepted threshold of debt as a percentage of GDP for emerging markets.

However, the DOF earlier said it sees the country’s debt-to-GDP ratio going down to 60.7 percent in 2023 and 59.7 percent in 2024.

It was only in 2019 when the country recorded its historic low debt-to-GDP of 39.6 percent.

Nonetheless, Dominguez said the affordability of debt remains “well-manageable” with interest payments as a share of revenues declining from 24.4 percent in 2010 to just 15.2 percent in September 2021.

Meanwhile, interest payments as a share of expenditures also improved from 19.3 percent in 2010 to just 10.1 percent in September 2021.

“The share of debt denominated in foreign currency declined to 29.6 percent as of the third quarter of 2021 from 42.4 percent in 2010. Thus, the risk of peso depreciation inflating the debt level has been significantly reduced,” he said.

As for the government’s programmed budget deficit, Dominguez said this will start to decline next year at 7.7 percent of GDP.

“This is well-supported by the rebound of revenue collections, which puts much less pressure on our borrowing requirements and debt sustainability threshold,” he said.

In the same event, Dominguez urged Japanese business leaders to invest in the Philippines, especially now that corporate income taxes have been reduced and the fiscal incentives regime has been rationalized under the Corporate Recovery and Tax Incentives for Enterprises law.

The CREATE law provides an immediate 10-percentage-point cut in the corporate income tax rates of micro, small and medium enterprises, from 30 percent to 20 percent; while the rest of the corporations enjoy a 5-percentage point reduction, from 30 percent to 25 percent.  It also provided flexibility in granting fiscal and non-fiscal incentives.

“With CREATE, we see opportunities to strengthen investment and business partnerships with Japan especially in the areas of manufacturing, digital technology, renewable energy, and research and development activities,” he said.

Dominguez vowed a ramping up in the rollout of the government’s infrastructure program for the rest of President Duterte’s term.

“The modernization of our infrastructure should open many opportunities for Japanese businesses looking at the region for expanding their operations,” he said.

The economic managers will continue to push for the passage of economic liberalization bills as well as the pending packages under the Comprehensive Tax Reform Program, particularly the improvements in the property valuation system and in the taxation on passive income and financial intermediaries, he added.

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