By Arabella Balderama and Alex Lauricio

On Monday, October 2, the Bureau of Treasury said the Philippines’ outstanding debt peaked at PHP 14.35 trillion in August as the peso continued depreciating against the dollar.

“[It] was primarily due to the peso depreciating from 54.834 to 56.651 against the US dollar over the reference period,” they said.

According to the agency, the total debt comprised 31.8 percent foreign and 68.2 percent domestic borrowings, settling at PHP 4.56 trillion and PHP 9.79 trillion, respectively. 

This occurrence marked a 0.7 percent increase from last month’s record of PHP 14.147 trillion, amounting to PHP 105.28 billion.

To combat the issue

The government sought to implement additional tax revenue collections and other reforms to reduce their reliance on loans.

Some measures include the remaining packages under the Duterte administration’s Comprehensive Tax Reform Program and potentially imposing a value-added tax on service providers, single-use plastics, and pre-mixed alcohol.

Moreover, the economic team planned to enforce higher excise taxes on sweetened beverages and salty food, as well as to rationalize motor vehicle road user tax and modify the mining fiscal regime to generate more revenues.

On the other hand, the government is striving to broaden the fiscal base through expenditure reforms, specifically the rightsizing program and adjusting the pension system for the armed forces and uniformed personnel.

Currently, the country’s borrowings account for 97.4 percent of the expected P14.62 trillion debt by the end of 2023.

Meanwhile, in line with the country’s growing debt, the World Bank announced that the Philippines ranked fifth from previously being seventh in the list of their largest borrowers.

The Anatomy of Debt

As of October 2023, PHP 9.17 trillion of the country’s total outstanding debt came from internal or domestic sources, while PHP 3.56 trillion came from outside the country, with sources ranging from partner countries to the International Monetary Fund. These loans were a result of borrowing money for infrastructure projects, as well as providing funds during the pandemic.

“Contrary to popular belief, the public debt is not driven by foreign borrowings, but rather domestic debt,” said JC Punongbayan of Usapang Econ—a group of expert economists who explain difficult concepts online for the public to understand.

Another economist, Solita Monsod, noted that foreign debt is still overshadowed by domestic debt, meaning that lenders and borrowers are both Filipinos. Paying domestic debt usually means the money stays within the country and circulates through the economy.

Despite the country’s rising inflation combined with its debt, the Bangko Sentral ng Pilipinas (BSP) said that the country’s “debt burden remains manageable.” 

One concrete measure of identifying the country’s ability to pay back its loans is its debt-to-GDP ratio. Gross Domestic Product (GDP) is the value of the goods and services created by a country and usually translates into funds generated by the economy of a country. 

According to the World Bank, lower debt-to-GDP ratios indicate a healthier economy—specifically, countries with consistently higher debt-to-GDP ratios experience significant economic stagnation and slowdown.

According to the Vera Files, The debt-to-GDP ratio of the Philippines increased by 15 percentage points to 63.7% by November 2022, which is a result of the pandemic-induced borrowing and loaning of the country.

Data from 2022 will show that, compared to our Asian neighbors, the Philippines has the lowest foreign debt-to-GDP ratio, which indicates a robust and healthy economy at 27%. Malaysia, Thailand, and Indonesia’s external debt-to-GDP ratio stood at 69.3%, 39%, and 38.6% respectively.

“In Southeast Asia, the external debt-to-GDP ratio of the Philippines remains the lowest among five ASEAN countries,” Department of Finance chief economist Gil Beltran said.

Thailand boasts the highest household debt-to-GDP ratio among neighboring Southeast Asian (SEA) countries. This measure represents the amount of debt divided or placed on each household. 

In other SEA countries, Indonesia is slowly repaying its debt, decreasing its debt-to-GDP ratio in the first quarter of 2023. Malaysia also reports a decrease in its debt-to-GDP ratio, signaling an era of recovery in the SEA region after the pandemic-induced borrowing of its countries.

Thumbnail from The Philippine Star