DEBT SERVICE will likely become a “greater burden” for many emerging economies, including the Philippines, as overall spending will stay high and state revenues remain under pressure, the Institute of International Finance (IIF) said.

“While global financing conditions remain strongly supportive, pandemic-related spending increases and revenue losses have made debt service a greater burden for many EMs (emerging markets) including the Philippines, South Africa, India, Indonesia, and Turkey,” the IIF said in its Global Debt Monitor report released on Thursday.

State revenues will continue to be strained amid extended lockdowns and the slow rollout of coronavirus vaccines.

IIF data showed the share of government interest expense over their overall revenues will increase the most in the Philippines among 15 emerging markets studied. The ratio is projected to jump by nearly six percentage points in 2021-2022 from the level in 2018-2019.

Data from the Bureau of the Treasury showed interest payments by the government accounted for 13.3% of state revenues in 2020, up from 11.5% in 2019 and the highest in four years or since 2016’s ratio of 13.9%.

“For many EMs, much-needed improvements in domestic tax regimes could help boost revenue capacity. However, heightened political and social tensions as the pandemic wears on could limit governments’ willingness to deliver structural tax reforms, leaving many sovereigns more reliant on domestic and international debt markets,” the IIF said.

It estimated that the Philippine government’s outstanding debt rose to an equivalent of 38.5% of gross domestic product (GDP) in the first quarter, from 38.5% in the first three months of 2020.

Overall debt by Filipino households also rose to 16.9% of GDP last quarter from 16% a year ago.

Meanwhile, the debt stock of non-financial companies and the financial sector also posted annual increases to 33.5% (from 31.8%) and to 11.9% (from 11.4%), respectively, in the last quarter.

The rise in government debt stock among emerging countries had been softer compared with those of advanced economies, largely due to fiscal constraints, the IIF said.

Emerging markets have to boost their efforts in reducing their carbon footprints as failure to cut reliance on carbon-heavy activities could put more pressure on borrowing costs.

“A 10% increase in climate vulnerability is estimated to increase EM sovereign spreads by 100 basis points on average. On the flip side, improvements in climate change resilience should help EM sovereigns to tap international debt markets at more favorable rates,” it said. — Beatrice M. Laforga