A HEALTH WORKER prepares to administer a coronavirus disease 2019 vaccine at a vaccination facility in Quezon City, June 23, 2021. — PHILIPPINE STAR/ MICHAEL VARCAS

THE Philippine economy needs to grow above six percent annually in the next five to six years to reduce the country’s debt, Finance Secretary Carlos G. Dominguez III said on Thursday.

“The biggest challenge for the next administration is really to grow out of the debt that we incurred during the pandemic, which was natural because our revenues went down due to the lockdowns and we increased expenditures,” he told Bloomberg Television. “The next administration would have to design policies and stick to very strict fiscal discipline to grow out of this debt problem.”

The national election will be held on May 9, with the new administration taking over in July.

The Philippines borrowed P1.3 trillion and received grants worth P2.7 billion to fund its pandemic response, including coronavirus vaccines.

The Department of Finance (DoF) has said it would take 40 years to pay off these pandemic-related loans and grants.

“Some of our debt has a 40-year term, so we assumed debt at very, very favorable terms, in terms of tenor as well as interest rates,” Mr. Dominguez said.

“So, we’re not worried about the repayment, but we have to really grow out of the debt. In other words, expand our economy by better than 6% per year, over the next five or six years.”

The Philippines ended 2021 with P11.73 trillion in outstanding debt, pushing the debt-to-gross domestic product (GDP) ratio to a 16-year high of 60.5%. This is higher than the 60% threshold considered manageable by multilateral lenders for developing economies.

Outstanding debt stood at a record P12.09 trillion at the end of February.

The government set a 7-9% GDP growth target this year, and 6-7% in 2023, as it expects the economy to bounce back from the pandemic.

However, the Russia-Ukraine war would weigh heavily on the Philippine economy’s recovery, Mr. Dominguez said, citing the impact of the war on oil and grain prices.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the Philippines is likely to achieve more than 6% GDP expansion in the next few years since it was the “norm” before the pandemic disrupted the growth momentum.

The outlook may be clouded by uncertainty from geopolitical risks, China’s potential economic slowdown, and global monetary policy tightening, he said in an e-mail.

“All these put pressure on trade performance, remittance inflows and real investment,” Mr. Asuncion said. “Moreover, there are domestic uncertainties from the results of the May national elections. Investors are weighing carefully and watching the internal developments that would form part of future investment expansion decisions.”

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa, said the country is unlikely to sustain more than 6% growth in the next few years.

“We believe the country will continue to post robust growth in the coming three years,” he said in an e-mail. “We believe however growth momentum has been significantly impaired by the pandemic and several headwinds point to growth moderating to roughly 5% through to 2024.”

“We could see growth fall below the official 7-9% target, and even below the 6% threshold set out by Mr. Dominguez.”

Several multilateral institutions’ growth projections for the Philippines are below the government’s 7-9% target.

The International Monetary Fund (IMF) and ASEAN+3 Macroeconomic Research Office (AMRO) gave a 6.5% GDP growth forecast for the Philippines this year, while the Asian Development Bank (ADB) expects a 6% expansion.

For 2023, AMRO sees the Philippine economy expanding by 6.5%, while the IMF and ADB both forecast 6.3% growth.

Only the World Bank gave lower than 6% GDP projections for the Philippines — 5.7% GDP for 2022 and 5.6% for 2023 and 2024.

Meanwhile, Mr. Dominguez said the Philippines would be closely watching the Federal Reserve’s monetary policy normalization before making its own policy adjustments.

“We don’t want to be behind the eight ball here because if the US raises their interest rates, people in the Philippines will, of course, want to follow those rates. We have to make sure we balance the need to grow, the need to fight inflation and the need to preserve our capital,” Mr. Dominguez, who sits on the Monetary Board, said.

The US Federal Reserve in March began raising interest rates by a quarter percentage point to tame decades-high inflation. 

The Bangko Sentral ng Pilipinas (BSP) has kept rates steady to support economic recovery.

In March, inflation in the Philippines quickened to 4%, matching the upper end of the central bank’s 2-4% target.

BSP Governor Benjamin E. Diokno has said inflation could breach the target in the second half due to surging global oil prices. He has said they were still keen to start raising interest rates by the second half, when they expect the economy will have likely returned to its pre-pandemic level.

The Monetary Board’s next two policy-setting meetings are scheduled for May 19 and June 23. Its first review in the second half is on Aug. 18. — Tobias Jared Tomas