PH has scope for more external borrowing – BSP

Published June 15, 2021, 2:00 PM

by Lee C. Chipongian

The Philippines’ debt repayment profile continue to be on the healthy side and have some headroom to increase foreign borrowing to fund anti-pandemic response and other financing needs, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.

Diokno said that a “large part of the country’s external debt has medium-and-long term (MLT) maturity profile, which supports a manageable debt repayment schedule” and that bulk of foreign borrowings have fixed interest rates which make these loans “not susceptible to global interest rates volatilities or foreign exchange fluctuations.”

Speaking before a virtual forum hosted by the Economic Journalists Association of the Philippines (EJAP) on Tuesday, Diokno reiterated there is sufficient fiscal space as well to “tap further international financing as needed.”

The BSP has removed the annual foreign borrowing ceiling – about $5 billion per year – to allow both the public and private sector to take out as much foreign loans as they need. Diokno has said that they have no plans of reimposing the cap since scrapping it in 2016.

During the EJAP forum, Finance Undersecretary Gil S. Beltran said the finance department still has a foreign borrowing cap for public loans which is an internal ceiling. “We have always been very careful in not exceeding the level of foreign borrowing that can be allowed,” he said.

“Actually, the level of foreign borrowing should be related to how big your economy is. So, its always a question of debt over GDP. As long as that one is within the 60-70 percent (limit), you’re still OK according to IMF (International Monetary Fund). If you go beyond that then your creditors will start punishing you with higher rates,” said Beltran. “So we’re very careful not to push too much the level of borrowing that we can incur,” he added.

As of the end of 2020, the external debt-to-GDP ratio was up at 27.2 percent from 22.2 percent in 2019. Diokno said this was mainly due to pandemic-related financing needs. The BSP considers this a “prudent level”.

The last time that debt-to-GDP ratio was at the 27-percent level was in 2013 and it was below 24 percent in 2015 until 2019. When the global financial crisis happened in 2008-2009, the country’s debt-to-GDP ratio was almost 37 percent.

Diokno said the BSP will continue to support government policies that will further shore up the local economy’s “resilience to external shocks” such as a market-determined exchange rate, a healthy level of foreign exchange reserves and “keeping the country’s external debt manageable.”

The peso vis-à-vis the US dollar, currently around P47-48, is one of Asia’s strongest currencies. Diokno said this reflects the adequate US dollar reserves of $107 billion, and also because of “improving market sentiment.”

Socio-economic Planning Secretary Karl Kendrick T. Chua said in the forum that the exchange rate’s appreciating or depreciating trend will not affect the pace of Philippine economic recovery. “(The) exchange rate is a price, it is dictated by the demand and supply. And the market will bring the exchange range to equilibrium, and if you try to control it then there will be many unintended consequences.”

Diokno again stressed that “barring yet-unforeseen growth speed bumps” the economy is on a recovery path and “has the essential elements to rebound this year” to about 6-7 percent growth.

“However, there is still a high level of uncertainty, both domestic and abroad. The government has to be more strategic in addressing possible resurgence in cases and in expediting vaccination,” Diokno told EJAP members. “We have to be ready for the possible spillover risks resulting from differentiated and divergent recoveries. We need robust institutions and sustained policy discipline to see us through this COVID fog,” he added.

The government in 2020 increased its foreign borrowing to fund COVID-19 response. The additional foreign loans pulled the outstanding external debt higher by 7.8 percent to $98.488 billion at the end of the first pandemic year, from $83.618 billion in 2019.

Based on BSP data, the maturity profile of the country’s external debt remained predominantly MLT or about 85.6 percent of the total. Short term accounts or those with original maturities of up to one year contributed about 14.4 percent.

The BSP said the weighted average maturity for all MLT accounts remained at 16.6 years, with public sector borrowings having a longer average term of 20.4 years compared to 7.3 years for the private sector. This means that foreign exchange requirements for debt payments continued to be well spread out and manageable, said the BSP.