THE Philippines’ ability to fund its pandemic spending from domestic sources gives it an edge among domestic markets, Oxford Economics said,
In a note, “Funding conditions spiraling into control for most emerging markets (EMs),” Oxford Economics said many EM governments have increased their reliance on “more reliable domestic sources of finance.”
These include the Philippines, which maintains a 72:25 borrowing mix in favor of domestic sources.
According to Oxford Economics, heavy reliance on domestic funding leaves governments less exposed to external volatility compared to those depending on international markets.
“The composition as well as the size of debt can be important in predicting which sovereigns may run into funding difficulties this year,” it said.
In 2019, the government’s total debt stock rose to P7.73 trillion, with P5.127 trillion from domestic sources. Around 33.66% or P2.603 trillion was borrowed from foreign creditors.
“Domestic residents are typically more willing to fund their governments in times of stress, whereas international investors are more likely to take capital out of the country,” it said.
Oxford Economics classified the Philippines among the EMs with large funding capacity from the domestic financial system.
“And though the expansion of sources could prompt heightened concerns over credit booms and busts, it also means numerous EMs can tap deeper domestic markets without overstretching their capacity too much,” it said.
“Thailand may have it easy: a 3% increase in total financing need in 2020 is small relative to domestic funding capacity (220% of GDP). Malaysia, the Philippines, India, and Brazil are similarly advantaged,” it said.
So far, the Philippines has rolled out P200 billion in cash aid to poor families, P51 billion in wage subsidies for employees of small businesses, and could roll out another P170 billion for its economic recovery plan.
The economic team is projecting a budget deficit equivalent to 8.1% of GDP this year largely due to plunging revenue and higher spending for its emergency response.
The government’s total debt stock is estimated to hit P9.589 trillion by the end of 2020, equivalent to 49.8% of GDP, and up about 24%. — Beatrice M. Laforga
