The Philippines’ public debt stock and debt transparency

I am tackling two topics in this piece, so let us go straight to the numbers.

Our public debt is approaching P16 trillion.

Last week the Bureau of the Treasury (BTr) announced the public debt stock for May 2024. The actual debt was P15.35 trillion, 68% of it — or P10.44 trillion — is domestic debt. If guaranteed debt is included, our total public debt is P15.7 trillion.

I compared the numbers with those of recent years, all during May for consistency of comparison. The biggest increase in actual debt was P2.18 trillion from May 2020 to May 2021, or a 24.5% increase in just one year. There are two emerging trends.

One, there is a declining expansion in debt, from 24.5% in 2021 to only 13% in 2022 and 2023, and only 9% in 2024. This is good.

Two, there has been continued high expansion in external loans, with an average 18.4% annual increase from 2020 to 2024. We are borrowing more from the multilaterals (see Table 1).

The main cause of the continued expansion of our public debt despite high GDP growth is that National Government expenditures keep rising fast, and the high interest rates that push our interest payment even higher. For instance, the interest payment (principal amortization not included yet) of our public debt was P502 billion in 2022, P582 billion in 2023, and is projected to be P670 billion this year. The actual interest payment from January-May 2024 was already P321.6 billion, or an average of P64 billion/month. If this rate continues, our full year 2024 interest payment would be P770 billion, much larger than the P670 billion target. We need to grow 6-7% yearly so that revenues expand in step with GDP expansion.

Department of Finance (DoF) Secretary Ralph G. Recto noted the link between growth and fiscal targeting. At the Economic Journalists Association of the Philippines (EJAP)-SMC Economic Forum yesterday, July 8, Mr. Recto said that “Since fiscal goals are anchored to growth targets, setting high GDP targets amidst external headwinds risks a revenue shortfall. This would strain our deficit and potentially increase borrowing. But tempering these targets does not diminish our commitment to fiscal consolidation. Instead, it reflects a confident and conservative approach to fiscal policy-making.”

Department of Budget and Management (DBM) Undersecretary and Principal Economist Joselito R. Basilio agreed with this assessment and made an optimistic note that “The current trajectory, maturity profile, and currency mix of both debt level and Debt-to-GDP ratio remain consistent with the planned fiscal consolidation of the government. If macroeconomic conditions continue to improve, Debt-to-GDP ratio should peak in the next two to three years. Debt levels should peak within the decade.”

Very well, gentlemen. And I really wish that the economic team can persuade the Bangko Sentral to reverse and cut that behemoth of a high interest rate policy very soon. It is a cruel chain that is dragging money from our pockets to the National Treasury direct to the lenders.

PHILIPPINES TOPPED THE DEBT TRANSPARENCY REPORT
Also last week, the Institute of International Finance (IIF) released the “IIF 2024 Investor Relations and Debt Transparency Report.” The IIF is a global association of private finance and investment companies based in Washington, DC. Some 23 factors were considered in the report, and 50 countries were covered. The result is good — the Philippines ranked first in both Investor Relations (maximum score is 13) and Debt Transparency (maximum score is 50) components. Indonesia also scored high, but not the other ASEAN countries (see Table 2).

The DoF highlighted this in their website and social media press releases. Mr. Recto said that “It is very encouraging to see that the Philippines is setting a global benchmark in investor relations and debt transparency… Transparency is most important, especially regarding government debt. We release data regularly to clearly show the public where their taxes and our borrowings go.”

I agree that the Philippines is very transparent when it comes to budget and public debt data. I particularly like the DBM’s Budget of Expenditures and Sources of Financing (BESF) report that they submit to Congress yearly, usually in August. One table there, on “Budget sensitivity to macroeconomic parameters,” shows that a 1% increase in GDP growth can lead to a P33 billion increase in revenues and budget balance.

It is important to have sustained high growth, and an expansion in GDP size which should outgrow the expansion in public debt stock. And the Bangko Sentral should help by abandoning its high interest rate policy.

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers. He is an international fellow of the Tholos Foundation.

minimalgovernment@gmail.com