MANILA, Philippines — Despite record debts that have piled up amid the protracted fight against COVID-19, the Philippines has managed to keep foreign borrowing “manageable,” remaining the lowest in the Asean-5 when it comes to are measured as a share of the economy, the Department of Finance (DOF) said on Saturday.
In an economic bulletin, DOF Chief Economist and Retired Undersecretary Gil Beltran noted that while the Philippines’ outstanding external debt had risen 8.1 percent to $106.4 billion dollars last year – the first time it crossed the $100 billion level, it was equivalent to 27% of gross domestic product (GDP), down slightly from 27.2% in 2020, when GDP declined amid the worst post-war recession inflicted by COVID-19.
“At 27% of GDP, the country’s external debt is at a manageable level. This ratio is less than half of the 2005 level, at 57.3%,” Beltran said.
The country’s total external debt figure released recently by the Bangko Sentral ng Pilipinas (BSP) showed that more than three-fifths of external obligations were owed by the government, while the rest was owed by the private sector.
“The recent accumulation of external debt was driven by the mobilization of government resources against the COVID-19 pandemic. In 2020, the external debt of the public sector increased by 35.8% but that of the external debt of the private sector actually decreased by 1.1%. In 2021, public sector debt increased by 10% and private sector debt by 5.3%,” Beltran noted.
The latest data from the Bureau of the Treasury (BTr) also showed that of the record outstanding 12.76 billion pesos of national government debt at the end of April, only 30% or 3.83 billion pesos were borrowings. strangers.
The government borrows mainly locally, through the weekly issuance of debt securities such as treasury bills and bonds, to take advantage of the injection of liquidity into the domestic financial system while minimizing exchange rate risks.
Thus, compared to its ASEAN-5 counterparts, the Philippines’ external debt-to-GDP ratio in 2021 was the lowest among developing economies in the region, such as Malaysia at 69.3%, Thailand at 39. %, Vietnam at 38.6% and Indonesia at 35%.
Before the pandemic, the Philippines’ external debt-to-GDP ratio was still below 22.2% in 2019. It also maintained its position of having the smallest share of foreign obligations to economic output in the Asean-5. , even at the height of its pandemic-induced recession in 2020.
“The Philippines is in the middle of 5 ASEAN countries in the ranking of percentage point (ppt) change in external debt-to-GDP ratio during the pandemic. At 4.8 ppts, the Philippines is higher than Indonesia and Vietnam, but lower than Thailand and Malaysia. This implies continued prudence in debt management,” Beltran said.
Last year, the Philippines borrowed a total of $2 billion from three multilateral lenders – the Asian Development Bank (ADB), headquartered in Manila, the Asian Infrastructure Investment Bank (AIIB) led by China, as well as the Washington-based World Bank – to fund its mass vaccination program against COVID-19.
In addition to the $1.2 billion obtained from these three development banks in March last year to buy vaccines, the government borrowed another $800 million last December to buy boosters and pediatric injections.
The three lenders directly paid vaccine manufacturers and suppliers for Department of Health (DOH) orders, so no money passed through the government to avoid corruption.
But the DOF’s own estimates showed that these pandemic-related concessional or low-interest long-term foreign loans need to be repaid until 2060, over two generations.
At a forum last week, Ndiamé Diop, the World Bank’s country director for the Philippines, noted that while “the focus was on the debt-to-GDP ratio, and rightly so,” the Philippines was also making progress. in reducing the amount of interest, taken from the national budget, that the government pays for unpaid debts.
Diop said that last year the share of interest payments in total government spending on public goods and services fell to 9.2%. “This indicator sheds light on the burden of debt in the budget – the payment of debt relative to other priority spending in the budget.”
“The good news is that in the Philippines, careful fiscal management and prudent debt management over the past decade have reduced this ratio from 19.3% in 2010 to just 9.2% in 2021. And it It’s one of the lowest numbers in the region,” Diop said.
“The economic managers of this country really already have the experience of lowering these ratios. And if I remember that figure which is the share of interest payments in the budget, if you look at it 20 years ago it was almost 30%. This means that the budget had little impact on the people of the country and on key infrastructure and priorities, as almost a third of the budget was spent on interest payments. So I think it’s really a number that gives us confidence,” added Diop.
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