By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) will no longer cap both the public and private sector’s foreign loans for as long as external borrowers are complying with the central bank rules and certain laws.
BSP Deputy Governor Diwa C. Guinigundo said they are now practicing an “indicative” policy as far as foreign loan ceilings are concerned.
“We look at their compliance with the ODA (Official Development Assistance) Law and the IMF (International Monetary Fund) definition, and as long as they comply with those (it’s all good),” said Guinigundo. The ODA “condition” is that it has to have a grant element of 35 percent.
The BSP is also focusing more on assessing concessionary rates on these foreign loans. By IMF definition, concessionary debt means “lending extended by creditors at terms that are below market terms” – some at zero interest rates — and these rates are given “with the aim of achieving a certain goal.”
Based on the ODA Law (Republic Act No. 8182), an ODA is a loan or a loan and grant, for purposes of “promoting sustainable social and economic development and welfare of the Philippines”. Under this law, it is a loan or grant with foreign governments “with whom the Philippines has diplomatic, trade relations or bilateral agreements or which are members of the United Nations, their agencies and international or multilateral lending institutions” and it is granted because “there are no available comparable financial instruments in the capital market.”
Guinigundo said commercial foreign loans are also included in the “no ceiling” policy. “We only monitor these foreign borrowings,” he added.
The ODA rule is applied for both the public and private sector. All foreign borrowings of the private sector also no longer need BSP’s permission, said Guinigundo. “However if they want to purchase US dollars from the market which they can always do, they need to register with the BSP to get a Bangko Sentral Registration Document or BSRD for banks to sell US dollars to them.”
The registration process helps the central bank to control the size of the country’s obligations and keep debt service burden at manageable levels, as well as “channel loan proceeds to priority purposes/projects supportive of the country’s developmen6t objectives and promote optimum utilization of the country’s foreign exchange resources.”
Imposing a foreign loans cap is also an inherited program from the days when the Philippines was still under the IMF tutelage when the IMF imposed a ceiling of $10 billion for all foreign borrowings.
The last time the BSP imposed a foreign loan ceiling – which was P5 billion – was in 2016. There were no caps in 2017 and 2018, mainly because of the BSP’s liberalized foreign exchange rules which revised the way banks and the corporate sector source their foreign currency requirement.
While the central bank has – in effect – left the private sector to its own foreign borrowing plan and they could borrow how much they want, the monitoring of all government foreign borrowing remains strictly mandatory.
In the meantime, the BSP reviews the private sector’s yearly foreign borrowing plans as part of its external debt management measures. These are banks, foreign parent companies and affiliates, and they borrow offshore via the issuance of bonds or securities in the international capital markets.
As of end-2018, the Philippines has an outstanding external debt of $79
billion. Public sector external debt stood at $39.7 billion at end-2018 while private sector debt was at $39.3 billion.