The country can’t afford, in any way, to lose its investment grade status because the price is too stiff. A downgrade is more than just losing a face, but also the additional premium attached to the government and the private sectors’ foreign debt.

It means an estimated increase in the borrowing cost or interest expense from a low of one to a high three percent, a bit harsh considering the market conditions at the moment.

Clearly, finance officials are headstrong in their faith for a strong economic performance in 2022. It is still an untested formula how the political campaign will proceed, but normally, election year fuels domestic economic activities. It helps to pump prime the economy.

International credit rating watchdog, Fitch Rating, downgraded in July the country’s outlook to negative, which reflects what it perceived to be an “increasing risks to the credit profile from the impact of the pandemic and its aftermath on policy-making as well as on economic and fiscal out-turns.”

Fitch, specifically, placed emphasis on the “underlying the projections for the general government deficit in 2021 are a central government deficit of 9.5% of GDP, and 7.8% in 2022, up from 7.6% in 2020.”

However, data I’ve gathered from the presentation of National Treasurer Lea de Leon showed that fiscal managers are looking at a lower deficit at 9.3 percent of GDP for this year with an absolute figure of P1.855 trillion, and 7.5 percent, or P1.665 trillion for 2022.

The projected gross financing for 2022 is substantially lower, down by 60 percent  from P3.072 trillion this year to only P2.472 trillion in the coming year.

The borrowings mix, likewise, has changed with a decline in the local borrowings and alternatively a slight uptick in foreign sourcing. From an 81-19 percent ratio this year, borrowings are increased to 77- 23 percent ratio to 2022, consisting of P1.912 trillion local and P581.370 billion foreign. 

Market watchers have been interested in the absolute numbers to guide them in their programming.

The government is determined to cut down the deficit because it cannot afford to just throw away the hard earned investment grade the country has aspired for the longest time since it went into a restructuring agreement with its commercial bank creditors under the Paris Club in 1990s with the assistance of the World Bank and the International Monetary Fund. This signaled the country’s return to the international financing community after 17 years of absence.

This brought to mind the comment of a finance official, member of the debt negotiating team, on the flow of discussions with the creditor-banks.  After a long sigh, he uttered: “It was a humbling experience,” virtually admitting that the negotiation between the Paris Club members and the Philippine representatives was tough. I was taken aback by his reply considering his “silver spoon” background. He must have inherited the patience from his father who served in the diplomatic corps.

With the hardships the economic managers, past and present, went through to bring the Philippines’ creditworthiness where it is right now, the government will not and cannot afford a rating downgrade. Thus, fiscal housekeeping is in order.

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