The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has approved $6.84 billion worth of government foreign borrowings to fight the pandemic and finance its anti-COVID-19 programs in the second quarter this year.
The foreign borrowings were up 125 percent compared to the previous quarter of $3.8 billion, and also higher than same time in 2019 of $3.04 billion.
These external loans include one bond issuance amounting to $2.35 billion; three project loans worth $340.99 million; and six program loans amounting to $4.45 billion.
The National Government (NG) loans will fund the following: the $2.35 billion for general financing requirements for 2020; the $4.45 billion for programs in response to the COVID-19 pandemic; and the $40.99 million for projects in infrastructure development.
Philippine laws require both the public and private sector to inform the BSP of their foreign borrowing requirements and plans for any given year, for the management of the country’s foreign debt.
The National Government, government agencies and government financial institutions in particular, have to submit all foreign loan proposals for the Monetary Board’s approval-in-principle. “The BSP promotes the judicious use of the resources and ensures that external debt requirements are at manageable levels, to assure external debt sustainability,” said the BSP.
As of end-March this, the Philippines’ outstanding external debt went up by 1.23 percent year-on-year to $81.42 billion.
The BSP used to impose a limit on both the public and private sector’s foreign loans but since 2018, there are no more caps but the central bank has a practice of “indicative” foreign loan ceilings.
The BSP is also focusing more on assessing concessionary rates on these foreign loans. By International Monetary Fund (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.”
Imposing a foreign loans’ cap is an inherited program from the days when the Philippines was still under the IMF tutelege, and when the IMF imposed a ceiling of $10 billion for all foreign borrowing. 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.