Debt service bill rises when PHL refinances short-term loans

Reuters

The Philippines and India are “most at risk” of having to refinance their debt in a rising interest rate environment due to the short-term debt they carry in their funding mix, says ANZ Research. in a report Wednesday.

« The pro of maturityIfpublic debt is an important consideration. The higher the proportion of short-term debt, the faster the budget squeeze takes to materialize. Against this backdrop, India and the Philippines appear to be the most exposed to the risk of a faster rise in debt servicing costs,” he said.

The Philippines and India had “the highest share of debt maturing in the next one to three years that may need to be repaid”.Iffinanced at higher rates.

Philippines debt maturity proIfthe indicates that the largest tranche of its debt will mature in three to five years. The second largest component is debt maturing in one to three years.

The report came to this conclusion after analyzing India, Indonesia, Malaysia, Thailand and the Philippines.

Compared to pre-pandemic levels, public debt at the end of 2021 was higher on average by 14.6% of gross domestic product (GDP) in the countries studied.

“The largest increase was almost 20% of GDP in the Philippines, with India and Thailand only slightly lower,” the report said.

“Following the adoption of these aggressive fiscal policies, mandatory public debt ceilings were relaxed in India, Indonesia, Malaysia and Thailand. The Philippines does not have a mandatory ceiling but nevertheless, debt has exceeded 60% of GDP, the threshold considered by policymakers to be prudent,” he added.

National government (NG) debt stock was down 2.1% to 12.5 trillion pesos at the end of May.

At the end of IfIn the first quarter, the Philippines’ debt-to-GDP ratio was 63.5%, down from 60.5% at the end of 2021 and 39.6% at the end of 2019.

The highest debt-to-GDP ratio on record was 65.7% in 2005.

“In our view, national government debt has already peaked…Although fiscal policy becomes more conservative, bringing debt back to pre-pandemic levels of around 40% will be difficult. The government is also considering a gradual pandemic-related debt reduction of about 3.2 billion pesos (about 14.8% of GDP),” ANZ Research said in a separate report.

The ratio of interest payments to income could also increase further “given the constant increase in interest rates”.

“OfIfFinancial estimates suggest that for a 1% increase in the interest rate, the cost of servicing debt increases by about 0.5 percentage points. Meanwhile, the growth differential over interest rates, an important determinant of debt sustainability, is also expected to narrow as economic growth stabilizes amid rising borrowing costs,” did he declare.

However, it is also possible that “a structural increase in public debt could reduce policy space to deal with unforeseen shocks, particularly in the context of rising interest rates and slowing global growth.” , said ANZ Research.

On the fiscal side, the NG aims to reduce the budget deficit from 7.6% to just 3% by 2028.

ANZ Research gave its own estimate at 7.7%, which represents a possible additional increase in income that does not offset the additional spending needs.

“The pre-pandemic medium-term objective was to stabilize the budget ofIfcite at this level. Underlying this reduction is a combination of reduced spending and increased income, the latter returning to its pre-pandemic 2019 level of 16.1% of GDP,” said ANZ Research.

The NG plans to hit the 16% mark by 2025.

“While not a daunting challenge, the underlying assumptions of maintaining annual real GDP growth at 6-7% will be difficult,” he added.

Economic managers have recently revised their growth projections, targeting 6.5-7.5% growth for 2022.

For 2023 to 2028, the growth target was 6.5 to 8%. — Diego Gabriel C.Robles

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