The government’s higher foreign borrowings to fund its anti-COVID-19 war chest is controlled and that debt indicators still show manageable levels, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
“While the country’s outstanding external debt will increase to the extent of the foreign borrowings that will be obtained by government, we would like to assure the public that the impact of these borrowings on key metrics is manageable and sustainable in view of the favorable terms extended by the creditors,” said Diokno.
The BSP’s policy-making arm, the Monetary Board, has approved as of end-July $5.6 billion worth of government foreign borrowings. These include: the $2.6 billion loan from the Asian Development Bank; $1.5 billion from the World Bank-International Bank for Reconstruction and Development; $750 million from the Asian Infrastructure and Investment Bank; $477 million (50 billion Japanese yen) from the Japan International Cooperation Agency; and $295 million (EUR250 million) from Agence Francaise de Developpement.
Diokno said the country’s external debt ratio is one of the lowest in the Asian region. As of end-March this year, Philippine external debt was lower quarter-on-quarter at $81.4 billion, equivalent to 21.4 percent of GDP.
“To be frank, this is a good number as external debt was nearly at 60 percent of GDP 15 years ago,” Diokno told reporters during his regular virtual “GBED” Talks.
He said debt to GDP ratio show “sustained strong position to service foreign borrowings in the medium to long-term” and this helps the economy’s capability to absorb external shocks.
“Despite foreign borrowings done in the past seven months, the economy continues to have the capability to service its maturing foreign obligations. This is in view of the country’s markedly improved external debt manageability achieved through 20 years of critical structural reforms,” said Diokno.
In managing the country’s external debt level and to ensure sustainability, the BSP has safety mechanisms in place, such as requiring all banks and corporations both public and private to submit to the BSP its foreign borrowings plan in a given year. “The approval mechanism enables BSP to analyze the size of external debt and its implications on economic variables such as gross international reserves, balance of payments and money supply,” said Diokno.
Diokno also said the BSP has liberalized – in the last 10 years -- its foreign exchange regulatory framework to “boost the resilience of the economy and the financial system against external shocks”.