The global economy is in danger of getting stuck on a low-growth high-debt path. And this redounds to lower incomes and fewer jobs anywhere in the world.
The alarm was sounded off by a top official of the International Monetary Fund (IMF) Managing Director Kristalina Georgieva during the press conference of the recent 2024 IMF and World Bank Group Annual Meetings in Washington, D.C.
The global economy is in danger of getting stuck on a low-growth, high-debt path, emphasizing the need for governments to take action on the debt issue and institute pro-growth policies and reforms, Georgieva stressed. “So less investment to support families and fight long-term challenges like climate change.”
There is a need to “finish the job of inflation without unnecessarily damaging the job market” and to start addressing the debt issue, she added. “That can be done gradually, but it needs to start now.”
Besides the high debt levels, of equal concern is debt servicing which can negatively affect the budget allocations of developed nations, including for social services like education and health.
Georgieva concluded, “Governments must work to reduce debt and rebuild buffers for the next shock—which will surely come, and maybe sooner than we expect.
Credit Rating Respectable
Georgieva’s statements resonate for the Philippines which has seen an increasing debt load that, ironically, is expected to further go up as the country’s credit rating remains respectable.
As of end-2023, the Philippines had a debt-to-gross domestic product (GDP) ratio of around 61.9 percent, increasing from 60.1 percent from end-2022. During the Duterte administration, the debt-to-GDP ratio was below 40 percent, but the pandemic forced the government to borrow to plug budget gaps.
Meanwhile, the country’s total outstanding debt slightly increased by 0.8 percent to P16.02 trillion as of end-October, according to the Bureau of the Treasury (BTr).
Besides the high debt levels, of equal concern is debt servicing which can negatively affect the budget allocations of developed nations, including for social services like education and health.
Capable To Repay
The irony is despite the country’s increasing debt load, it got an investment upgrade rating up to “positive” from “stable,” as reported by Standard & Poor (S&P) Global Ratings.
S&P also kept the sovereign credit ratings at “BBB+” for long-term and “A-2” for short-term.
The investment upgrade sends a signal that the government has the capability to repay its debts.
“The positive outlook reflects our improved assessment of institutional and policy settings in the Philippines … (which) could lead to stronger sovereign support over the next 12-24 months if the Philippines’ economy maintains its external strength, healthy growth rates, and that fiscal performance will strengthen,” said the American credit rating group.
Committed To Deliver
On Philippine GDP growth, S&P expects this to settle at 5.5 percent this year, below the government’s low-end target of 6 percent.
S&P added that while slower global economic growth may drag down the economy, growth in the Philippines “should be well above the average for peers at a similar level of development.”
Factors lead to improvements in the quality of expenditure, manageable fiscal deficits, and low general government indebtedness.
As for inflation, S&P said that it has settled the government’s 2 to 4 percent target. November inflation settled at 2.5 percent, and year-to-date inflation is 3.2 percent, citing the diversified economy of the Philippines, with its “strong record of high and stable growth.”
GDP Growth Falters
The government’s confidence on sustaining higher GDP growth seems to be faltering. Specifically, the Development Budget Coordination Committee (DBCC) revised anew this year’s GDP growth target to 6 to 6.5 percent from the previous 6 to 7 percent.
“Despite domestic challenges, we are optimistic that we can still attain our growth target for the year of 6 to 6.5 percent,” Budget Secretary and DBCC Chairperson Amenah Pangandaman said, expecting the Philippine economy to bounce back during the last quarter.
Furthermore, the economic growth forecast for 2025 to 2028 have been adjusted to 6 to 8 percent from the 6.5 to 7.5 percent for 2025 and 6.5 to 8 percent for 2026 to 2028.
When it comes to its peers in Southeast Asia, Indonesia and Vietnam both have debt-to-GDP ratio of 39.9 percent as of end-2023.
Meanwhile, Malaysia’s is 63.4 percent and Singapore 160 percent as of end-2023. While Singapore’s debt-to-GDP ratio is the highest in Southeast Asia, its status as a developed economy gives it more leverage to deal with its debt.
