​Takeaways from the Fiscal Risks Statement

PHILIPPINES - In Brief 28 Sep 2020 by Romeo Bernardo

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The Development Budget Coordination Committee (DBCC) published recently its annual Fiscal Risks Statement (FSR)[1]. This year’s report covers the impact of the covid19 pandemic on government’s fiscal health over the medium-term. Below are our key takeaways of fiscal risks to keep watch of over the medium-term.[2]The DBCC expects the national government debt-to-GDP ratio to swell from below 40% last year to 53% this year due to the emergency borrowings made to finance the suddenly wider budget deficit. The debt ratio will continue to climb with “moderate risk” of exceeding 60% as soon as next year. A reversal to a downward path for the debt ratio depends on GDP growth and the fiscal deficit returning to their pre-crisis averages over the medium-term.The higher debt will need closer monitoring as it translates into much higher annual gross financing needs, exceeding 10% this year and next by our estimate. Rollover risks are partly mitigated by looser monetary policies everywhere that will keep interest costs low, with the foreign currency share making up only about a third of total national government debt, a portion of which is held by residents[3]. The Philippines also has a robust external payments position that provides fundamental support to the currency.CHART 1.NG debt, % of GDP*Source: BTr*the increase in short-term debt this year includes the P300b purchase agreement with the BSP (central bank)National government revenues, forecast to fall to 13.6% of GDP this year or 2.7ppt below the pre-crisis level, will not return to pre-crisis levels in the foreseeable future. Following the declaration of a state of emergency, government was able to secure more than P100 bil...