"Increased economic activities, along with a manageable debt level, will depend on how soon the Philippines can contain COVID-19 and reach herd immunity."
Increased domestic and foreign borrowings are raising the total outstanding debt of the national government. Lower state revenues from stunted economic activities and rising expenditures to fund the COVID-19 health crisis and several infrastructure projects are forcing the administration to borrow more.
The outstanding debt of the national government reached P1.17 trillion at the end of June this year, or up 23 percent from a year ago. But rising debt per se is not bad economics. The country’s debt-to-GDP (gross domestic product) ratio remains below 60 percent, or well within the respectable level expected from an investment-grade nation like the Philippines, as credit watcher Fitch Ratings measures it.
Despite the higher debt profile and a contracting economy, the Philippines remains in good shape. The nation is still in a position to pay back its obligations without incurring further debt. But not for long—if the economy further deteriorates and the budget deficit is not held in check.
Any government under fiscal duress will eventually have to right the ship. It must draw up a fiscal consolidation plan to reduce the government deficit and revive the economy to stop the bleeding.
Economic managers, thus, must chart a course to restore growth and check the budget deficit and the accumulation of the debt stock. A restored economic growth level implies higher revenue collections based on increased business activities. The higher revenue level will also address the increasing budget deficit, unless the government opts to reduce spending.
The Duterte administration is eyeing a return to the pre-pandemic economic growth level of at least 6 percent annually by 2024 or 2025. That means the next administration will have to implement growth-inducing measures and maintain a fiscal discipline to sustain the positive Philippine GDP chart.
Increased economic activities, along with a manageable debt level, will depend on how soon the Philippines can contain COVID-19 and reach herd immunity. A vibrant economy that generates millions of jobs and provides social services will take care of the debt and budget deficit problems.
