The central bank is not reimposing any limit on foreign borrowings by government and private sector at this time despite a projected increase in foreign debt.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said there is no need for the BSP to cap foreign borrowings as limits on foreign debt under existing law is already enough for now.

The BSP used to impose a ceiling of $5 billion to $12 billion per year as part of its foreign debt sustainability program. However, this was scrapped in 2016 in favor of more foreign fund sourcing for public-private partnership infrastructure projects.

Imposing a ceiling on foreign borrowings is an inherited program from the days when the Philippines was still under the tutelage of the International Monetary Fund (IMF). The IMF used to impose a $10-billion ceiling for all Philippine foreign borrowings.

Diokno said annual foreign debt ceilings were effective when the country was experiencing pressures from low international reserves, among others. “These ceilings were lifted in 2016 as the BSP recognize that it may no longer be appropriate after the liberalized economic environment,” he said. 

Diokno said despite the BSP removing its cap on foreign borrowings, there are safeguard measures such as ceilings on the amount of foreign exchange that were borrowed and guaranteed by the National Government under the Foreign Borrowings Act or Republic Act No. 4860 and other exceptions detailed under the Official Development Assistance (ODA) Act or RA No. 8182 that are still effective.

“In addition, (BSP have) measures (that) are being implemented to support external debt sustainability. Because of these measures as well as the country’s manageable external debt profile, the BSP does not see the need to reinstate the annual foreign debt ceilings,” said Diokno.

As long as external borrowers are complying with BSP rules and certain laws such as the ODA law, the ceilings on foreign borrowings will continue to be set aside. The ODA condition is that a foreign loan has to have a grant element of 35 percent.

The BSP is also focusing more on assessing concessionary rates on these foreign loans. By 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.”

Part of BSP’s decision to remove the ceiling was because of its liberalized foreign exchange rules which revised the way banks and the corporate sector source their foreign currency requirement.

While the central bank has generally left the private sector on its own as far as its foreign borrowing plan is concerned, the monitoring of all government foreign borrowing remains strictly mandatory as per the foreign borrowings’ law.

Still, the BSP monitors the private sector’s yearly foreign borrowing plans as part of its external debt management measures. Banks and corporates borrow offshore via the issuance of bonds or securities in the international capital markets.

The BSP makes it mandatory to submit such plans to monitor the “magnitude and timing” of foreign financing requirements of the economy which would help them in their capital flows projections and its implications on the economy.