Fitch: Philippines debt ratio remains lower than its Asian peers

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MANILA, Philippines – The Philippines’ debt ratio remains lower than its peers in Asia-Pacific despite massive budget responses and economic contractions caused by the COVID-19 pandemic, according to Fitch Ratings.

In his latest commentary titled “The pandemic’s impact on debt varies widely among sovereign Asia-Pacific countries,” the debt observer said the Philippines, along with similarly rated peers such as the New Zealand, Thailand, Indonesia, Vietnam and Bangladesh entered the global health crisis with low ratio of public debt to gross domestic product (GDP).

“Over 2020-2021, this gap widened in Vietnam and Bangladesh, but narrowed in New Zealand and the Philippines, although in neither of the latter two has debt exceeded the peer median.” , Fitch said.

Among emerging markets, Fitch said strong nominal GDP growth in 2020-2021 and relative fiscal restraints are the reasons government debt-to-GDP ratios have grown more slowly in Bangladesh, Pakistan and Vietnam than in countries like the Philippines, Maldives and Vietnam. Thailand where tourism has been strongly affected by the pandemic.

Fitch said new waves of COVID-19 infections continue to pose more fiscal risks, especially in the majority of Asia-Pacific countries where vaccination programs are not well advanced.

The international rating agency recently lowered its outlook for the Philippines from stable to negative, but retained the country’s BBB credit rating.

It also sees the Philippines’ public debt-to-GDP ratio jump to 52.7% this year and 54.5% next year, from 34.1% in 2019.

The level, Fitch said, is slightly below the corresponding BBB medians of 57% and 58.7%, respectively.

The fiscal responses and economic contractions induced by the pandemic have resulted in a sharp increase in public debt among rated sovereigns in Asia-Pacific, he said.

Between 2019 and 2021, the public debt-to-GDP ratio is expected to increase by around 45 percentage points in the Maldives and 27 percentage points in Japan, but by only three percentage points in Vietnam and by 1.2 in Taiwan.

The relative success in containing the pandemic has both supported GDP and reduced pressure on governments to provide support, helping to limit the increase in public debt-to-GDP ratios over 2019-2021 in places like China, Hong Kong, South Korea, Singapore, Taiwan and Vietnam, according to Fitch.

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John A. Bogar