Gov’t debt-to-GDP ratio improves in H1

Despite weaker peso, the share of debt to the country’s economy improved in the first semester of the year following a series of liability management measures implemented by the Department of Finance (DOF).

According to the latest computations released by the DOF, the government debt-to-gross domestic product (GDP) ratio declined to 42.92 percent at endJune this year from 43.41 percent in the same period last year.

Under the DOF’s medium-term fiscal program, the debt-to-GDP ratio is projected to sustain the yearly decline until falling to about 35 percent by the end of the Duterte administration.

The national government debt as a proportion of GDP had continually dropped from 52.4 percent in 2010 to 42.06 percent in 2016. The ratio is also a measure used by many debt watchers to assess the creditworthiness of governments.

Data from the DOF revealed that the share of foreign debt continued to decrease as the Duterte administration keeps its bias towards local borrowings than offshore financing to siphon excess liquidity in the domestic market.

At end-June, domestic debt-to-GDP increased to 28.32 percent from 28.24 percent last year, while foreign obligations fell to 14.6 percent from 15.17 percent in the same period in 2016.

The Bureau of the Treasury earlier reported the national government’s outstanding debt reached P6.417 trillion as of June, higher by 7.9 percent compared to the previous year’s P5.947 trillion.

The Treasury bureau attributed the rise mainly on weaker peso against the US dollar and other foreign currencies.

Finance Undersecretary Gil S. Beltran said in an interview that yesterday the country’s improving debt position ensures sustained fiscal space throughout the medium term.

Meanwhile, the DOF reported that the proportion of the government’s interest payments to its total expenditures dropped to 11.39 percent during the period from 11.94 percent in 2016.

Likewise, interest payments ratio fell to 2.02 percent of GDP from 2.1 percent last year.

On the other hand, the tax effort of the national government slightly declined to 14.21 percent at end-June, along with the revenue effort, which decreased to 15.64 percent from 15.98 percent last year.

Tax effort, a measure of the government’s efficiency in collecting taxes, is the ratio between collections of the BIR as well as the Customs and gross domestic product. For every one percent of GDP is around P80 billion.

To date, the Philippine still lags in tax effort compared to its Asian neighbors where the average tax effort is at 16 percent.

The last time the country came at par with the Asian average tax effort was in 1997 when the government posted a tax effort ratio of 17 percent. The tax effort ratio has been on the decline since then.