DEBT as a proportion of gross domestic product (GDP) is expected to hit 45.6% this year due to heavy borrowing during the pandemic, with gradual reductions expected by 2023, S&P Global Ratings said.

General government debt as a proportion of GDP is expected to rise slightly from S&P’s 2020 estimate of 45.5%, S&P said in a note issued Wednesday.

In 2019, the Department of Finance estimated the ratio at 34.1%.

The debt-to-GDP ratio measures an economy’s capacity to absorb debt, by comparing it to the resources available.

S&P said its “BBB+” rating with a stable outlook for the Philippines factors in its estimates of debt in the coming years. A stable outlook indicates that a rating is likely to be maintained over the next 18 to 24 months.

“Our government debt projections to end-2023 reflect limited contingent liabilities to public balance sheets from the ongoing distress that banks and non-financial corporations are experiencing,” S&P said.

“The good news for the majority of rated sovereigns is they face the current fiscal shock with historically low funding costs,” it added.

In the Philippines, key policy rates such as the reverse repurchase, lending, and deposit facilities are at record lows of 2%, 2.5%, and 1.5%, respectively. The monetary authorities undertook a series of policy easing moves amounting to 200 basis points last year to support the economy through the economic downturn.

S&P has warned that a rating downgrade could be in the works if the economy “suffers from a sharper and more prolonged downturn than we expect, leading to a material deterioration in the Philippines’ fiscal and debt positions.”

It expects the economy to grow by 9.6% and 7.6%, in 2021 and 2022 respectively.

GDP declined by a record 9.5% in 2020. — Luz Wendy T. Noble