Mostly from domestic market
The large structural liquidity in the local financial system will let the government continue preferring the domestic market as a key source of its funding requirements in 2021 to mitigate the buildup of foreign exchange risks from external borrowings, a Cabinet official said.
While the government’s debt-to-gross domestic product (GDP) ratio is expected to settle at 57 percent this year, Finance Secretary Carlos G. Dominguez III assured that this level of indebtedness is still within the “sustainable threshold.”
As the government is set to borrow P3.03 trillion in 2021, Dominguez said he is confident that it can “easily fulfill” this funding requirements for 2021.
“The Duterte administration is doing its utmost to avoid the costly reversal of our hard-fought gains in 2020 and the previous years,” Dominguez said during a recent virtual forum.
“We will continue to exercise discipline and prudence in managing our fiscal affairs. This, I believe, is the key to a strong and sustainable recovery,” he added.
The finance chief explained the government needs to maintain a P3 trillion borrowing level to scale up its COVID-19 response measures, allowing to safely reopen the economy as well as roll out a comprehensive program to bounce back from the global economic shock.
In 2021, the government will maintain an elevated but manageable budget deficit of 8.9 percent on the back of strong government fiscal support in restarting the economy, Dominguez said.
Owing to the large structural liquidity of the financial system, the government would be able to continue prioritizing domestic financing over external sources to reduce forex risks, he said.
Dominguez said the relaxation of the reserve requirements by the Bangko Sentral ng Pilipinas (BSP) further enhanced the system’s structural liquidity.
The government also has the option of re-accessing the BSP’s emergency lending facility, which was increased under Republic Act (RA) No. 11494 or the Bayanihan To Recover as One Act (Bayanihan 2) from P540 billion to P810 billion, he said.
Moreover, he said the Philippines’ high sovereign credit ratings will provide it ready access to external commercial
borrowings and official development assistance (ODA) at low rates and tight spreads.
The latest to retain the Philippines’ high investment grade credit rating was Fitch Ratings, which maintained the Philippines’ ‘BBB’ rating with a ‘stable outlook’ despite the crisis.
Fitch Ratings also affirmed the country’s ‘BBB’ grade amid several downgrades it did last year on 33 sovereigns, including countries that previously held the same rating as the Philippines such as Mexico, Colombia and Italy.
“This affirmation (by Fitch) is recognition of the soundness of our COVID-19 response measures and our strong fundamentals going into the pandemic. By keeping our credit rating, the Philippines continues to stand out in the international financial community amid a wave of negative credit rating actions,” Dominguez said.