Debt-to-GDP ratio is expected to improve with economic recovery

RCBC Chief Economist Michael Ricafort

MANILA – An economist predicts an improvement in the ratio of public debt to gross domestic product (GDP) in the coming months with the relaxation of movement restrictions, which means less need for support programs and increased income for the ‘State.

In a report dated Nov. 25, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the ratio of debt to the country’s annual output rose to 63.1 percent by compared to the third quarter of this year, exceeding the international threshold of 60%.

Ricafort said the increasing share of liabilities in domestic production makes “additional stimulus more difficult for now, unless there are new sources of new government revenue to fund them.”

He said exceeding the international debt-to-GDP ratio threshold would make fiscal or debt management less sustainable in the long run and “could have negative effects on the country’s relatively favorable credit scores and somewhat challenging outlook. the Covid-19 (coronavirus disease 2019) pandemic which has led to downgrades in other countries of the world. ”

“Structurally, a faster economic recovery that effectively increases the GDP base would help solve / remedy this problem in the months / years to come (similar to what has been observed over the past decade or so), alongside tax reform measures aimed at further increasing recurrent tax revenues. sources for the government, especially if economic conditions improve further, ”he added.

The national economy grew 7.1% in the third quarter of this year, the second consecutive positive growth after 12% in the previous three months and after the five-quarter contraction since the first quarter of 2020.

Ricafort cited the “need to prudently use government financial resources and ensure that there are enough of them in the months / years to come, given the uncertainties over how long the Covid pandemic will be. 19 would persist and continue to have adverse effects on the economy, in particular on the most vulnerable sectors.

“The most structural and sustainable solution is a further reopening of the economy which increases the capacity, production, sales, income, employment / livelihoods of many businesses and industries and also helps to increase government tax revenue, “he said.

Ricafort, however, said “it would be justified” if new cases of Covid-19 in the country decline further, along with the arrival of more vaccines against the virus and people’s continued adherence to health protocols. (ANP)

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