BSP approves $15.5 billion COVID 19-related foreign loans


The central bank’s Monetary Board as of May 7 has reviewed and approved $15.5 billion worth of foreign borrowings for the government’s anti-pandemic projects and programs.

 Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno reiterated on Thursday that despite the increasing debt profile, the Philippines’ external debt to GDP ratio of 27.2 percent as of end-2020 is still one of the lowest among Asian countries. The last time the external debt to GDP ratio was at this level was in 2013. It has stayed under 23 percent from 2017 until 2019.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno (MB file)

 The National Government (NG) debt to GDP of 54.6 percent is also still below the  60 percent internationally recommended debt to GDP threshold. The debt to GDP ratio was higher end-2020 versus 39.6 percent end-2019.

 “While external debt will rise to the extent of foreign borrowings that will be obtained by the NG, 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 during his regular online “GBED Talks”.

 About $1.2 billion of the $15.5 billion are for the purchase of COVID-19 vaccines.

 Diokno said the foreign borrowings were sourced from bond issuances amounting to $5.1 billion, as well as foreign loans from the Asian Development Bank of $4.3 billion, from the World Bank-International Bank for Reconstruction and Development of $3.7 billion, and from the Asian Infrastructure and Investment Bank of $1.1 billion.

 The Japan International Cooperation Agency also extended $942 million for COVID-19 response, with an additional $283 million from the Agence Francaise de Developpement Bank and $100 million from the Export-Import Bank of Korea.

 “As the country continues to deal with the challenges caused by the COVID-19 pandemic, the BSP remains steadfast and committed in supporting the government and the Philippine economy on its way to recovery through prudent debt management, among others,” said Diokno.

 Diokno also reiterated that the BSP continues to ensure the country’s debt sustainability by implementing these mechanisms: the conduct of an annual survey on foreign borrowings plan of both the public and private sectors; liberalization of the BSP's foreign exchange regulatory framework intended to boost the resilience of the economy and the financial system against external shocks; and the implementation of the provisions of the law on the approval of public sector foreign borrowings.

 “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.

 The BSP also meticulously keeps a comprehensive database of the country’s external debt for the monitoring of external debt in line with international standards.

 In 2020, the country’s outstanding external debt went up by 17.8 percent or $14.9 billion year-on-year to $98.488 billion.

 Diokno said that although there were necessarily more foreign borrowings in 2020, the economy continues to have the capability to service its maturing foreign obligations in view of the country’s manageable debt profile, relatively low external debt to GDP ratio and low debt service ratio.

 As of end-first quarter this year, the Monetary Board has approved $2.84 billion worth of public sector foreign borrowings, it is up by 19.36 percent from same time last year of $2.38 billion. These include six project loans worth $1.44 billion, a $600 million program loan and $798 million government bond issuances.

The $2.84 billion BSP-approved project loans also include the government’s $900 million COVID-19 response programs for vaccine procurement and distribution.

 To make sure foreign debt level continue to be manageable, the BSP is mandated to review and approve all public sector or government foreign borrowings under Section 20, Article VII of the 1987 Philippine Constitution. All National Government, government agencies and government financial institutions’ proposed foreign borrowings will need the BSP’s approval-in-principle before negotiating for these loans.