The government is bracing for a significant increase in national debt, projected to hit more than P17 trillion by next year, partly due to interests that accumulated from the extensive borrowing during the Covid-19 pandemic and the effects of a weak peso.

Data from the Department of Budget and Management’s (DBM) Budget of Expenditures and Sources of Financing submitted to Congress showed that the national government’s debt could reach P16.05 trillion by end-2024, with projections rising to P17.353 trillion by 2025.

Under the proposed National Expenditure Program (NEP), the Philippines also intends to allocate P876.7 billion for debt payments in the coming year, which constitutes 13.8 percent of the total P6.352-trillion budget.

In a press briefing, DBM chief economist Joselito Basilio explained that the peak in debt was a consequence of extensive borrowing during the pandemic, a period marked by economic downturns and increased expenditures.

The Department of Finance also said last April 2022 that it would take around 40 years to repay the P1.31 trillion in foreign debt accumulated by the Duterte administration to address the Covid-19 pandemic.

Debt ratio balloons

Government data showed the national government’s debt-to-gross domestic product (GDP) ratio ballooned from 39.6 percent in 2019 to 54.5 percent in 2020 and 60.5 percent in 2021.

Also, latest data from the Bureau of the Treasury (BTr) showed that the government’s outstanding debt was P15.347 trillion at the end of May, which is a 2.2 percent or P330.39 billion increase from the P15.017 trillion recorded at the end of April.

“We are aware that we have borrowed during the time that we have Covid, and at the same time, our borrowings will peak at some point in time. If we get closer to that, that would be sometime in the next few years,” Basilio said.

“Eventually, because we have a fiscal consolidation plan, we have an exact number of when the debt-to-GDP ratio will peak. Until GDP increases and we can pay, after the peak of debt, it will decrease. And then the ratio of debt-to-GDP will decrease because the denominator increases and the numerator decreases,” Basilio added.

‘We are aware that we have borrowed during the time that we have Covid, and at the same time, our borrowings will peak at some point in time. If we get closer to that, that would be sometime in the next few years.’

Basilio further elaborated on the government’s approach to debt management, emphasizing the importance of fiscal consolidation.

“Of course, our outlook is for inflation and interest rates to stabilize as soon as this coming second semester of 2024. So, the debt payments will decrease in that sense,” Basilio said.

Budget Secretary Amenah Pangandaman provided additional details, highlighting the significant portion of the proposed 2025 budget allocated for debt servicing.

Pangandaman said the interest payments for the fiscal year 2025 are at P876.7 billion, equivalent to 13.8 percent of the proposed P6.532 trillion budget for next year.

She said the increase is primarily due to the maturity of loans taken during the pandemic.

“Our debt increased during the pandemic because our economy was not open, and our revenues were low. We borrowed during those times, and most of those loans have now matured. Additionally, the forex exchange rate and interest rate have remained relatively high, and our forex moved a little in the past year,” she noted.

The NEP was formally presented to Congress on Monday, allocating P2.121 trillion for social services, P1.853 trillion for economic services, P1.083 trillion for general public services, P1.4193 trillion for defense, and P876.7 billion for debt obligations.