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Drop in debt-to-GDP ratio seen to encourage foreign investments

By Joann Villanueva

October 27, 2022, 8:58 pm

<p><strong>BETTER DEBT-TO-GDP RATIO.</strong> The drop in the share of government debt against the domestic output is expected to encourage more foreign investments into the Philippines. Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said improvement in the country's debt-to-GDP ratio helps ensure keeping the country's favorable credit ratings, which is among the factors that investors consider regarding countries to invest in. <em>(Photo courtesy of RCBC)</em></p>

BETTER DEBT-TO-GDP RATIO. The drop in the share of government debt against the domestic output is expected to encourage more foreign investments into the Philippines. Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said improvement in the country's debt-to-GDP ratio helps ensure keeping the country's favorable credit ratings, which is among the factors that investors consider regarding countries to invest in. (Photo courtesy of RCBC)

MANILA – An economist considers the decline in the share of government debt to the domestic output as a bright spot in fiscal management and may help lift investors’ sentiment and encourage more investments into the country.
 
On Thursday, the Bangko Sentral ng Pilipinas (BSP) reported the USD367 million net outflows in foreign investments registered with the central bank in September 2022, higher than the USD23 million net outflows in the same month last year.
 
In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the net portfolio outflows last September are the widest in more than a year or since April last year.
 
Ricafort traced the higher net outflows to “increased market volatility during the month amid continued concerns locally and globally over elevated inflation, weaker peso exchange rate, and the rising trend in interest rates/bond yields that increased borrowing costs/financing costs during the month.”
 
He said these factors “have been drags to economic growth and valuations.”
 
Ricafort said rate hike decisions of the Federal Reserve have backed the US dollar and increased its attractiveness over other currencies in terms of interest rate income for US dollar-denominated deposits, debt instruments and investments.
 
He said increase in the BSP’s key policy rates also added to the volatility in the financial market, which has been greatly affected by the elevated inflation rate in the US which is the reason behind the Fed rate hikes and fears for the recession in the world’s largest economy.
 
However, Ricafort said these factors are expected to be countered in part by the improvement in the national government’s fiscal health, with the debt-to-GDP (gross domestic product) ratio down to 62.1 percent as of end-June 2022 from the 17-year high of 63.5 percent at the end of the previous quarter.
 
He said this development is in line with the “view of the need to reduce the debt-to-GDP ratio to below the 60 percent international threshold in able to maintain the relatively favorable credit ratings of 1-3 notches above the minimum investment grade and make fiscal/debt management more sustainable over the long-term and for the coming generations.”
 
Ricafort said the possibility of continued volatility in the global and local financial market is high if the Russia-Ukraine conflict continues, which is expected to result in sustained elevated levels of global oil and commodity prices and inflation.
 
This factor is also seen to result in more aggressive Fed rate hikes and increased the chances of a recession in the US. (PNA)
 
 

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