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Debt-to-GDP ratio rises to 56.2% in Q1 ahead of Fed rate hikes

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Federal Reserve debt-to-GDP
REUTERS

GOVERNMENT debt as a percentage of gross domestic product rose from a year earlier to 56.2% in the first quarter amid an increase in borrowing ahead of higher US interest rates, the Department of Finance (DoF) said.

“The National Government (NG) debt-GDP (gross domestic product) ratio rose from 55.2% as of end-March 2017 to 56.2% as of end-March 2018 as the country advanced its borrowing ahead of the projected triple adjustments in the Fed policy rate,” the DoF said in an economic bulletin yesterday.

“However, net debt-GDP ratio which nets out the NG cash balance from the debt level, dropped from 40.1% to 39.6%,” it added.

The DoF said that the “excellent design and timing of borrowings has allowed government to tap cheaper rates and longer maturities with higher volumes, enabling government to optimize savings for the ‘Build, Build, Build’ program and social expenditures.”

The Federal Reserve raised its benchmark rates by 25 basis points in March, and is believed to be considering two more rate hikes within the year. Last month, US 10-year bond rates breached 3% for the first time in four years.

The government expects outstanding debt as a share of the economy to decline to 38.9% by 2022 from 42.1% at the end of 2017.

The DoF said the government’s “proactive debt management” approach has created wider fiscal space to enable more spending. The share of debt relative to the economy declined to 42.1% in 2017 from 87.2% in 2006.

Outstanding debt was P6.879 trillion in the first quarter, up 0.85% from the end of February but up 11.1% from a year earlier, as the government issued more government securities domestically and increased its dollar bond issues and floated its first renminbi bonds.

Some 35.08% or P2.413 trillion of the loan portfolio was originated overseas.

This year, the government plans to borrow a total of P888.23 billion. It has set a 65-35% borrowing mix in favor of domestic creditors.

The government forecasts outstanding debt to rise to P6.995 trillion at the end of 2018. If the projection pans out, debt will have grown 5.16% from the actual total at the end of 2017. — Elijah Joseph C. Tubayan