MANILA – Department of Finance (DOF) Secretary Carlos Dominguez III has attributed the government’s manageable debt service to prudent fiscal management despite the increase in financing requirements due to the pandemic.
“Primarily, our program is very manageable because it is very conservative. We only fund what is required,” he told members of the House Committee on Appropriations during the hearing for the proposed 2022 national budget, which was attended virtually by some stakeholders on Thursday.
Government borrowing was set at around PHP3.07 trillion this year, while it is proposed to be around PHP2.47 trillion for next year.
Dominguez said while financing requirements increased because of the virus-induced pandemic, the government is “fortunate enough” to easily access funds at low cost because the economy kept its investment-grade credit rating.
“It has not been downgraded and that allows us to access (the) credit market at a relatively low interest rate,” he said.
To date, Moody’s Investors Service’s rating on the country is Baa2, a notch above minimum investment grade rating with a stable outlook, while it is ‘BBB’ with a negative outlook for Fitch Ratings and ‘BBB+’ with a stable outlook for S&P Global.
In his speech, Dominguez said the interest rate on borrowings by the government to date is 100 basis points lower than in the previous administration at 4.2 percent annually.
The government borrowed around PHP2.7 trillion in gross financing in 2020, and bulk or about 70 percent of this was sourced onshore.
The increased borrowings brought the share of the budget gap to gross domestic product (GDP) to 7.6 percent last year, nearly doubled from the previous year.
“Nevertheless, this level is still sustainable considering that we had to rapidly enlarge our health care capacity and procure sufficient doses of vaccines for our people,” Dominguez said.
He said governments around the world registered higher borrowings since last year because of the pandemic but what sets the Philippines apart “is that we entered 2020 with a historic low debt-to-GDP ratio of 39.6 percent.”
“This means that we could better absorb additional borrowings than other countries whose debt ratios were already at 60 percent before the pandemic,” he said, referring to the international threshold of debt-to-GDP.
The country’s debt-to-GDP rose to 60.4 percent as of end-June 2021, but credit raters still consider this manageable.
Dominguez said the bulk of the government’s fiscal resources is used for productive spending instead of debt servicing thus, the additional loans are “beneficial to economic development rather than a burden to growth.”
He also told lawmakers that the rise in government borrowings in recent years was due to higher investments in human capital and infrastructure.