PH debt to hit over ₱10T by December

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Metro Manila (CNN Philippines, August 27) — The country's debt will keep rising in the next few months to end at ₱10.16 trillion by December, data from the Budget Department showed.

Outstanding loans of the national government totaled ₱9.05 trillion as of June, adding ₱1.3 trillion in the first six months. Debt amounted to ₱7.73 trillion last year.

RELATED: Budget deficit swells in July as PH spends on coronavirus response

Domestic loans are seen to hit ₱6.9 trillion, while foreign credit — accounting for a fourth of the sum — will be worth ₱3.25 trillion by December. 

In his message for the ₱4.506-trillion national budget for 2021, President Rodrigo Duterte said the economic team tempered revenue collection goals this year and for 2021 given the "significant blow" dealt by the COVID-19 crisis to economic activity. They now expect to collect ₱2.5 trillion from taxes and other fees this year against ₱4.3 trillion in projected expenses, which are largely used to respond to the COVID-19 pandemic.

This will leave a funding gap worth ₱1.8 trillion or nearly a tenth of gross domestic product (GDP), which will have to be financed through borrowed money.

"From consistently managing and maintaining our deficit relative to GDP at conservative levels at 3 percent of GDP, the decision has been made to break from tradition and increase deficit financing. It is necessary — and it is justified," Duterte said.

"When tax revenue collections are dwindling — and when government spending is most critically needed — government has to resort to deficit spending."

For 2021, government is set to borrow ₱3 trillion more, which will bring the yearend debt tally to ₱11.98 trillion. A compromise, however, is that the country will rely less on foreign lenders and will source just 15 percent of the total abroad. The biggest chunk will be borrowed locally, equivalent to ₱8.5 trillion.

Duterte said this strategy lessens risks from exchange rate fluctuations, which could further add to the value of the country's debt. By 2021, the country's debt burden will be at 53.9 percent of GDP.

The Department of Finance earlier said it will keep government debt at less than half the size of the local economy. Meanwhile, central bank Governor Benjamin Diokno said it's still manageable to keep the debt-to-GDP ratio at 60 percent or lower.

Other states are running on debt that's more than the annual value of their economy. Debts are paid using taxpayers' money.