The central bank’s Monetary Board has approved $2.8 billion worth of government or public sector foreign borrowings in the second quarter this year, down by 59 percent from same time in 2020 of $6.84 billion.

 The government raised EUR2.10 billion ($2.49 billion) from a Euro-denominated bond issue last April which was its fourth bond sale since the pandemic. It also tapped a $300 million project loan.

“These foreign borrowings will fund the National Government’s (NG) general financing requirements (EUR2.10 billion) and COVID-19 pandemic response covering vaccine procurement and distribution ($300 million),” the Bangko Sentral ng Pilipinas said.

The April-June public sector borrowings were lower than the $2.84 billion approved in the first quarter this year. 

In the first quarter, there were six project loans worth $1.44 billion approved by the Monetary Board, including a $600 million program loan and $798 million government bond issuances. It also includes the government’s $900 million foreign loan 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.

The BSP used to have a foreign borrowing cap for both the government and private sector loans to control the size of the country’s external debts. 

But BSP Governor Benjamin E. Diokno has said that so far, there is no need for the BSP to limit foreign borrowings as there are laws that already place a ceiling on foreign debts.

These ceilings on the amount of foreign exchange borrowed and guaranteed by the NG are provisions under the Foreign Borrowings Act or Republic Act No. 4860 and other exceptions detailed under the Official Development Assistance Act or RA No. 8182 that are still effective.

The BSP used to impose a ceiling of $5 billion to $12 billion per year as part of its foreign debt sustainability program, however in 2016, this was scrapped 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.

As of end-March 2021, the Philippines’ external debt stood at $97.05 billion, up by 19.19 percent from $81.421 billion same period last year. 

As a solvency indicator, external debt-to-GDP ratio went up to 27.2 percent in the first quarter this year versus 21.4 percent in 2020. The country’s external debt-to-GDP ratio however is still one of the lowest in ASEAN.

Of the $97.05 billion external debt, $56.8 billion were public sector borrowings, with the NG borrowing $50.8 billion of this total while the remaining $5.9 billion are loans of government-owned and controlled corporations, government financial institutions and the BSP.