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MANILA, Philippines – Government debt as a share of the country’s economic output fell to its lowest in 13 years, according to the Department of Finance.
In a statement, the agency said the debt-to-gross domestic product (GDP) ratio declined to 50.9 percent in 2011, from 52.4 percent the year before. An indicator of economic performance, GDP is the amount of final goods and services produced in the country.
This ratio, which measures how long the government can sustain its debts, had fallen to 48.1 percent in 1998.
“Our revenues hit a double-digit growth last year which was the highest in a decade excluding years when new measures were instituted. More revenues meant we did not have to borrow much from the market,” Finance Secretary Cesar V. Purisima said.
“This, of course, boils down to the fact that reforms we instituted in tax administration and in government spending has allowed us to improve government’s balance sheet,” he said.
With revenues rising 12.58 percent in 2011, the government managed to keep its budget deficit at P197.758 billion, or down to two percent of GDP from the previous year’s 3.5 percent.
Budget deficits, which result from revenues trailing expenditures, force the government to borrow money, thus bloating its debt.
“Our debt exchanges allowed us to reduce our holdings of short-term debts with high interest in favor of those with low interest and long maturity,” Purisima said.
Given the Philippines’ improving debt profile, the finance chief said the country now has better chances of snatching another credit rating upgrade.
He said the general government debt ratio – which excludes obligations held by social security institutions – dropped to 40.7 percent in June last year.
“With this improvement in our national government debt, we expect a similar downward trajectory in our general debt, further boosting our case before credit rating agencies that the Philippines deserve a better rating,” Purisima said.
The finance chief last month met with representatives from Fitch Ratings, Standard & Poor’s Ratings Services and Moody’s Investors Service to provide them an update of the Philippine economic landscape.
The government maintains that the Philippines is underrated, citing domestic economic gains despite uncertainties abroad. Fitch rates the country a notch below investment grade, while Moody’s and S&P maintain ratings that are two notches below.
Securing an investment grade rating would translate to bringing down the country’s cost of borrowing.
"The market is already considering the Philippines as an investment grade nation. I hope credit rating agencies will listen to what the market is saying," Purisima said, citing the global dollar bond issue last January when the government enjoyed a five-percent coupon rate, which is "the lowest rate charged for an Asian sovereign for a tenor that is longer than 10 years."
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