August 25, 2022

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DoF says debt service bill only 11.6% of 2023 budget

FINANCE Secretary Benjamin E. Diokno said the debt service bill accounts for 11.6% of the proposed 2023 budget, rejecting a report that the payments amount to nearly 30% of government spending.

“Only 11.6% or P611 billion of the P5.268 trillion proposed 2023 national budget is allocated for debt burden. The amount includes P582.3 billion for interest payments and P28.7 billion for net lending,” Mr. Diokno said in a Department of Finance (DoF) statement on Thursday.

He said the 11.6% total is reflected in the Department of Budget and Management’s People’s Budget primer.

He rejected a newspaper report that the debt service bill is P1.6 trillion or 29.8% of budget spending. The DoF said that the newspaper incorrectly calculated principal amortization of P1.02 trillion as part of the expenditure.

The DoF said principal amortization is not considered as an expense item in accounting as it is “merely the settlement of debt obligations incurred from expenses already recorded in the past.”

The amortization of principal implies that the obligation is “only transferred from an old creditor to a new creditor in the process of refinancing.”

The debt service bill as a share of the budget is 0.8 percentage points higher than the 10.8% in 2022, but lower than the 12.4% posted in 2021.

Last week, Mr. Diokno told both chambers of Congress the debt burden is manageable despite external shocks because 75% of the debt is expected to be from domestic sources by year’s end.

Most of the national debt is also long term, spread out, and taken on at the lowest possible rate, he added in the statement.

Outstanding debt as a share of gross domestic product (GDP) eased to 62.1% at the end of June, after the national debt hit a record P12.79 trillion.

Based on the proposed 2023 national budget, outstanding debt is projected at P14.63 trillion by the end of 2023, with principal payments set at P1.6 trillion that year.

The government estimates the debt-to-GDP ratio to drop to 61.3% by next year from 62.1% at the end of June, and the budget deficit to 6.1% of GDP in 2023 from an estimated 7.6% in 2022.

Government revenue, buoyed by a reopening economy, will shrink the deficit, Mr. Diokno said, citing the 7.4% economic expansion in the second quarter.

The government expects the economy to grow 6.5-7.5% this year and 6.5-8% between next year and 2028.

“Economic analysts consider this goal to be the highest projected growth rate among the ASEAN+3 (Association of Southeast Asian Nations +3) countries, which include Japan, South Korea, and China,” the DoF said. — Diego Gabriel C. Robles