the philippines: debt sustainability analysis · debt-to-gdp continues to be sustainable... ng...
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Debt-to-GDP continues to be sustainable...
NG Debt-to-GDP sustained its downward trajectory, underpinned by strong growth and prudent
fiscal and debt management.
The steep decline recorded in 2014 (3.8 ppts) was driven mainly by reduced borrowings due to
lower than program spending, as well as a shift in Bond Sinking Fund contribution strategy.
Over the medium term, debt levels are expected to contract further following the 2% of GDP deficit
ceiling.
53.9% 54.7% 54.8%52.4%
51.0% 51.5%49.2%
45.4%43.9%
41.2%39.3%46.1% 46.7% 47.1%
45.0%43.0% 42.6% 41.9%
39.0%37.0%
35.4% 34.1%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
NG Debt/GDP NG Debt/GDP (net of BSF)
Improving Capacity to bear debt....
Underlying Fiscal Framework...
Fiscal Consolidation towards Debt Sustainability...
3.70%
3.80%
5.00%
4.40%
3.70%
2.60%
1.00%
0.20%
0.90%
3.70%
3.50%
2.00%
2.30%
1.40%
0.60%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
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Deficit-to-GDP
Passage of
EVAT
GFC
Stimulus2% Deficit
Program
Primary Balance/GDP
1.44%
2.70%
3.91%
3.70%
2.64%
-0.25% -0.22%
0.83%
0.66%
1.38%
1.96%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fiscal Consolidation towards Debt Sustainability...
Ability to service debt...
31.70%
23.60% 22.60%24.80% 24.40%
20.50% 20.40% 18.80% 16.80% 16.00% 14.60% 13.50%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Interest Payments/Revenue
Projection
Revenues allocated for interest service have declined steadily....
More funds are being channelled to productive spending.....
29.70%23.30% 21.40% 19.60% 19.30% 17.90% 17.60% 17.20% 16.20% 14.20% 13.10% 12.10%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Interest Payments/Expenditure
Projection
14.5%
13.4%
14.5%
4.4% 4.7%
4.8% 4.5% 4.3%
2.4%3.2%
2.8%
7.1%
9.6% 9.7%
6.4%5.7%
7.4% 7.4% 7.2%
5.2% 5.3%
4.3%
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
70,000.00
80,000.00
90,000.00
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NIR (USD, millions) NG External Debt Maturing in 1yr (USD, millions)
NG External Debt (USD, millions) Public Sector External Debt (USD, millions)
NG Externa debt maturing in 1yr/GIR NG External Debt Service/Exports
(USD, millions)
Improving external debt dynamics…
Strong build of foreign exchange reserves and robust exports…
Note: Exports refer goods and receipts from services and primary income
Debt Sustainability Analysis
Debt sustainability analysis is a tool to inform
debt managers of the possible and probable
future paths of debt metrics
Involves macroeconomic and market projections
as well as stochastic simulations of shocks to
these projections
Assessing Debt Sustainability
• Scope or coverage (Central Government, GG or public sector)
• Medium term fiscal projections and macroeconomic assumptions
• Contingent liabilities
• Government assets
• Method for the analysis
Key Considerations for DSA
Debt-to-GDP Baseline Projection
Assumes that borrowing does not deviate from
the strategy
Macroeconomic assumptions and market
variables remain unchanged
Produces a future path for debt metrics given no
adverse events
Baseline Shocks: Effects of Typhoon
An average of 8.9 typhoons cross or land in the Philippines yearly. This is around 45% of the actual number of typhoons that enter the Philippine Area of Responsibility.
This is the most common form of disaster suffered by the Philippines.
Historically, these typically impact the agriculture sector, which contributes only 0.2 percentage points to Philippine GDP growth
However, household consumption, which contributes 3.7 percentage points to GDP growth, is also heavily affected
Household consumption becomes low the year after a disaster, although this is offset by an increase in government spending.
Baseline Shocks: Constructing the Model
Disaster (i.e., typhoon) likelihood was modelled as a
Poisson random variable with a parameter of 0.5 HIGH
DAMAGE typhoons yearly.
Its effect on GDP was modelled as a Lognormal random
variable, producing a considerable effect in the year of
the disaster and a subsequent but softened effect in the
year following the disaster.
The simulation was run through 500 iterations
Baseline Projection
Baseline projection of Debt-to-GDP sees the metric declining from 48% to around 31% in ten years
NG debt includes the government’s holdings of its own securities (Bond Sinking Fund)
Declining Debt-to-GDP ratio (2014-2024)
Debt/GDP: Disaster Shocks
The median level of debt-to-GDP is at 38% at 2022
The confidence that debt-to-GDP will reach 44% in 7 years is at 95%
Debt Service/Revenue: Disaster Shocks
Debt servicing to revenue is more volatile due to maturities in 2019 and 2021
Nonetheless, debt servicing is expected to remain between 15-25% of revenue in ten years
Conclusion
DSA is a fiscal policy tool that looks into the fiscal deficit, debt stock
and their evolution in the medium-term.
Stochastic simulation better assess debt sustainability because it
reflects the co-movement of various shocks and their impact to debt
ratio
Fan charts provide a range of possible or probabilistic outcomes
making it a useful tool for monitoring fiscal risks and take into
consideration risk-mitigation policies/actions
Scenario analysis is also important to measure the impacts of
different shocks and/or events that could adversely affect the
trajectory of the debt ratio.