ECONOMIC GROWTH is on track to outpace the rise in the National Government’s (NG) debt, with borrowing costs expected to go down as global central banks cut interest rates, the Department of Finance (DoF) said on Monday.
During the Development Budget Coordination Committee’s (DBCC) briefing before the House Committee on Appropriations, Finance Secretary Ralph G. Recto said the cost of borrowing remains manageable as it is “much lower” than the country’s gross domestic product (GDP) growth.
“In fact, our effective interest rate for next year is only 5.3%, which is very cheap considering that the average term of our debt is 7.5 years. If we remove inflation, our real interest rate is only 2.3%, far lower than our expected real GDP growth of 6.5%, which means we are on track to outgrow our debt,” he said.
A country’s debt is more appropriately measured on the size of its economy as this identifies its capacity to pay its obligations, Mr. Recto said.
“From 60.9% (debt-to-GDP ratio) in 2022, it fell to 60.1% in 2023. And we are determined to continue pushing it below 60% so we have enough buffer in case another crisis hits us,” he said.
According to the Bureau of the Treasury, the debt-to-GDP ratio is expected to inch up to 60.6% by end-2024. It sees the debt-to-GDP ratio falling to 60.4% in 2025, 60.2% in 2026, 58.4% in 2027 and 56.3% in 2028.
“The continuous decline in our debt-to-GDP ratio since the pandemic is one of the reasons why our credit ratings remain high… This means that we not only have the capacity to pay our debts, but we can have more access to cheaper financing,” he said.
The DBCC is targeting 6-7% GDP growth this year and 6.5-7.5% GDP growth in
2025.
As of end-June, the NG’s outstanding debt rose to a fresh high of P15.48 trillion, up 9.4% from a year ago. Debt is expected to reach P16.06 trillion at the end of 2024 and P17.35 trillion by end-2025.
Source: Business World Online
