THE Development Budget Coordination Committee (DBCC) said that national government (NG) debt will remain at prudent levels over the medium term even though the government is pushing to finance infrastructure investments with loans.

“A debt sustainability analysis (DSA) projects NG debt-to-GDP (gross domestic product) ratio remaining within prudent levels,” the DBCC said in its Fiscal Risk Statement 2018.

The DBCC projects a 90% probability that the debt-to-GDP ratio will settle below 43.9% by 2022, and a 50% likelihood it will stay between 36-41.4%.

The government targets a 37.9% debt share of GDP in 2022, from 42.5% in the first half of 2017.

“The DSA shows that NG debt continues to demonstrate resilience against various macroeconomic shocks, and despite higher funding requirements over the medium term,” it added.

Outstanding national government debt was P6.437 trillion at the end of November, up 5.4% from a year earlier.

Assumptions for the latest Fiscal Risk Statement for the year include 6.4% GDP growth in the first half of 2017 and a 3.1% inflation rate in the eight months to August 2017.

Among the macroeconomic risks that it identified were the impact of the government’s fiscal reform program, and the pending petitions for adjustments in electricity rates, which present upside risks for inflation.

“Meanwhile, slower global economic growth due to policy uncertainty in advanced economies and geopolitical tensions continues to be the main downside risk to inflation,” the DBCC said.

It added that a faster-than-expected interest rate hike by the Federal Reserve could trigger further portfolio rebalancing, resulting in tighter financial market conditions, and could contribute to higher domestic and foreign interest rates.

A potential shift to inward-looking trade and investment policies in the US could dampen overseas remittances — money sent from that country currently accounts for 33.1% of overall remittances — weaken the Philippines’ business process management sector that currently caters mostly to US companies, result in withdrawals from free trade agreements, and possibly introducing an element of foreign exchange volatility.

Moreover, the DBCC also cited the absorptive capacity of government agencies as continuing to pose “one of the major sources of fiscal risk,” with government underspending attributed to “structural weaknesses in program/project preparation and implementation.”

Local government units (LGUs) likewise face fiscal risks over the cancellation, closure and suspension of mines and mineral production sharing agreements by the Environment department in February 2017.

The DBCC said that affected LGUs stand to lose some P899.35 million in revenue collected from mining firms amid their already-deteriorating position in terms of locally sourced funding.

Locally raised revenue growth from provinces slowed to 10% in 2016 from 28% in 2016, while cities’ growth was 10% in 2016 from 12% in 2015.

“If this continues, local revenues will be overshadowed by the growth of NG revenues, which means LGUs will continue rely on the national transfers for the delivery of public goods and services,” the DBCC said. — Elijah Joseph C. Tubayan

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