• The stock of national government debt stood at PHP12.76 trillion by the end of April 2022. This is 0.66% higher than the stock of debt registered at the end of the first quarter of the year and 8.83% higher than the end-2021 outstanding debt. As of the first quarter, the debt-GDP ratio reached 63.5%, up from the 60.4% recorded in 2021.

DOF Chief Economist Commentary

• The recent build-up of debt is largely on account of the economy’s response to the pandemic. The economy was able to borrow massively precisely because it had the capacity to do so prior to the pandemic. The debt-GDP could have been higher had the additional stimulus bills earlier proposed by Congress (e.g., Bayanihan 3) been passed. Stimulus packages are best unpacked at the appropriate moment such as when disasters strike, not when the economy is on high gear at which time the appropriate policy response is to conserve energy and keep powder dry.

• From economic management in general, trimming down the debt-GDP ratio means growing the economy at a faster rate than the build-up of debt. This year, the DBCC pencils real GDP growth to be between 7% and 8% and 6% and 7% next year through 2025. There are higher odds of achieving these investment-led growth targets given the infrastructure spending in prior years, the lowering of corporate income taxes, and the recently-passed structural reforms (i.e., amendments to the FIA, RTLA, and PSA). Note, however, that these growth assumptions rest on the absence of negative economic shocks (such as the resurgence in infections). 

• On the fiscal front, fiscal consolidation is achieved by narrowing the deficit: shoring up revenues and cutting non-priority expenditures but without sacrificing infrastructure spending. Absent new tax measures and further cuts in spending, the latest baseline scenario projects the deficit reaching 4.1% of GDP by 2025, down from 2021’s 8.6%. Mobilizing an additional PHP250 billion a year will cut further the deficit so as to reach around 3.2% by 2025, a figure comparable to the pre-pandemic deficit of 3.4%.

•  It is therefore important to restore fiscal health and build up reserves when the economic weather is fine so as to have the capacity to respond again should shocks materialize. This is akin to having an insurance that covers for contingencies. Not having one is a fool’s game and fiscal heartaches hit the hardest when it’s too late. 

Table 1 Medium-Term Fiscal Program (in % of GDP), 2022-2025

Note: * DBCC assumptions as of 24 may 2022

Sources of basic Data: DBM; PSA; BTr