Recto: Philippine economy ‘large enough’ to meet debt obligations

Department of Finance (DOF) Secretary Ralph Recto assured members of a House of Representatives panel that the Marcos administration is managing the country’s debt according to the “highest standards of fiscal discipline”.

Recto issued this clarification on Monday, Aug. 5, during his presentation before the House Committee on Appropriations in relation to the proposed P6.352 trillion proposed national budget for 2025.

According to the finance chief, the Philippines achieved its lowest debt-to-gross domestic product (GDP) ratio, in 2019 under the administration of former President Rodrigo Duterte. The total nominal debt was at P7.7 trillion with the GDP valued at P19.4 trillion.

However, by the end of Duterte’s term in 2022—on the heels of the Covid-19 pandemic—this figure nearly doubled to around P13.4 trillion, while the GDP is at P19.9 trillion.

“Sa unang tingin, tila napakalaki ng ating utang na umaabot ng trilyon. Pero, uulitin ko, hindi po tayo dapat mabahala dito,” he said.

[At first glance, our debt appears to be enormous by reaching trillions. But, I repeat, we should not worry about this.]

“Hindi nasusukat ang utang ng isang bansa base sa pagtingin lang sa aktwal na laki nito,” he added.

[A country’s debt cannot be measured based on looking at its actual size.]

Recto explained that like with private individuals, debt should be viewed relative to repayment capacity, which in the case of governments are measured by the size of their respective economies.

“It is also important to note that while we are doing this, the cost of the government’s borrowings has climbed post-pandemic as central banks have raised their interest rates to combat inflation driven by geopolitical tensions,” he added.

For instance, the Russia-Ukraine war broke out in early 2022, a crucial time when the global economy was expected to rebound post-pandemic.

With this, the administration of President Marcos is now refinancing the necessary large borrowings contracted during the low-interest rate period in 2020 to 2022 with new debts that bear higher interest rates.

“But while interest rates have gone up, the cost of our borrowings remains manageable and much lower than our GDP growth,” Recto stressed.

The former lawmaker said the country’s effective interest rate for next year is only 5.3 percent. He noted that is “very cheap” considering that the average term of the country’s debt is 7.5 years.

Removing inflation, the country’s real interest rate is only 2.3 percent, far lower than the expected real GDP growth of 6.5 percent.

To simply put, the Philippines is on track to outgrow its debt.

With the present administration’s strict adherence to fiscal discipline and proactive debt management, Recto said the country has maintained its high credit rating status.

This status indicates that the country can pay its debts sustainably and can have more access to cheaper and more cost-effective financing.