Philippines to see decline in debt burden in 2023

THE PHILIPPINES will likely see its debt decline this year amid continued economic growth, Moody’s Investors Service said on Monday.

“For only a few sovereigns, including Fiji, Maldives and the Philippines, debt burdens will decline by several percentage points in 2023, driven by high nominal GDP (gross domestic product) growth,” Moody’s said in a Jan. 9 report.

“But their debt burdens will still hover far above pre-pandemic levels.”

The National Government’s outstanding debt rose by an annual 14% to a record-high of PHP 13.644 trillion as of end-November.

However, the end-November debt inched up by only 0.02% month on month “primarily due to the effect of local currency appreciation against the US dollar on foreign currency loans.”

The debt-to-GDP ratio stood at 63.7% as of the end of the third quarter, which is above the 60% threshold prescribed by multilateral lenders. This is the highest debt-to-GDP ratio in 17 years, and significantly higher than the 39.6% seen in 2019.

This year, economic managers are aiming to bring down the debt-to-GDP ratio to 60-62%, as the Philippine economy is expected to expand by 6-7%.

“While debt burdens have peaked, scope for significant reduction is limited. Although deficits are likely to decline, debt reduction will be modest and burdens will remain close to 2022 levels. Fiscal deficits for most governments are likely to be equivalent to or near their debt-stabilizing fiscal balance,” Moody’s said.

Economic managers in December revised the deficit projection to 6.9% of GDP in 2022, but maintained its target deficit to 6.1% of GDP for 2023. The deficit is projected to continue to decline in the next few years to 3% of GDP in 2028.

Moody’s said its outlook for sovereign creditworthiness in the Asia-Pacific region is “stable,” in contrast to the “negative” outlook for other regions.

“Debt sustainability and financial stability are relatively well anchored in the region, with contained government liquidity risks, broadly stable debt dynamics and generally sound external positions. GDP growth will stabilize close to potential levels and outperform other regions, despite higher global inflation and tighter financial conditions,” Moody’s said.

However, social pressures have slowed the progress of fiscal consolidation of most Asia-Pacific economies, it added.

“Debt affordability will fall from generally robust levels as interest rates rise and will be manageable for most in the region,” Moody’s said.

As the pace of rate hikes in the United States and Europe are expected to slow this year, Moody’s said this will reduce pressure on Asia-Pacific central banks to tighten policy or to mitigate currency depreciation.

Meanwhile, the Asia-Pacific region’s economic growth will be slower this year, but will still be stronger compared with other regions, Moody’s said.

“Growth will be lower than in 2022, but close to potential in most cases, underpinning broad credit stability. Slowing economic activity in large export markets such as the US and EU will weaken a major engine of growth for the region, although a modest upturn in China will provide support,” Moody’s said.

Moody’s noted that easing of pandemic-related border restrictions and continued domestic reopening will drive the recovery in the services sector and boost consumption in the region.

“We expect output gaps to continue to close in a number of countries where service-sector rebounds are underway, particularly tourism-oriented economies such as Fiji and Thailand, and those that are midstream in their post-pandemic recoveries such as India, Malaysia and the Philippines,” it said. — L. M. J. C. Jocson