Foreign borrowing still seen as ‘prudent’ despite major expansion in gov’t debt

GOVERNMENT borrowing remains “prudent” despite the significant increase in the public debt, a bank economist said, adding that much of the borrowing taken on in the last two years was necessary to help manage the coronavirus disease 2019 (COVID-19) pandemic.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government needed to insulate the economy from external risks.

The Department of Finance (DoF) said in an economic bulletin Saturday that the recovery that emerged in 2021 was helped along by the loans and grants taken on since the start of the pandemic.

It said the long-term nature of much of the debt — up to 40 years — will still require a fiscal consolidation program and improved collections.

“Both the government and private sector have been prudent on foreign borrowing, in view of foreign exchange risks entailed, learning from the past crisis periods, especially during the Asian financial crisis,” Mr. Ricafort said.

“The country’s external debt-to-GDP ratio still relatively low compared to other ASEAN and similarly rated countries,” Mr. Ricafort added. “Most of the country’s foreign debt is medium- to long-term in nature to prevent the risk of bunching debt maturities.”

The Russian invasion of Ukraine, which began on Feb. 24, has added to the risk faced by all economies by pushing up fuel and commodity prices, while the winding down of the US Federal Reserve’s bond-buying program is expected to signal higher interest rates, he said.

The BSP has so far lent P300 billion to the national government, while issues of Retail Treasury Bonds (RTBs), have also reduced the need for the government to borrow overseas.

Mr. Ricafort said one of the areas of focus when taking on added debt is managing foreign exchange risk, particularly with regard to foreign debt.

The peso closed at P52.03 on Wednesday in a shortened trading week due to the Easter holidays, against Tuesday’s close of P52.10. The Wednesday close was among the currency’s weakest in two years.

Loans raised as of Jan. 14 for the pandemic response totaled P1.31 trillion, with the Asian Development Bank (ADB) providing P303.37 billion and the World Bank Group’s International Bank for Reconstruction and Development (IBRD) accounting for P291.95-billion, according to DoF data.

Donations were also received from the Asian Infrastructure Investment Bank (AIIB) (P66.01 billion), the Japan International Cooperation Agency (JICA) (P47.56 billion), Agence Française de Développement (AFD) (P28.96 billion), and the Eximbank of Korea (KEXIM) (P10.15 billion).

Meanwhile, grants received amounted to P2.74 trillion, with World Bank and European Union accounting for P1.06 trillion.

In total, combined grants and loans totaled P4.05 trillion.

The government plans to collect P3.29 trillion from tax and non-tax revenues in 2022, according to the Department of Budget and Management (DBM). The Bureau of Internal Revenue plans to collect P2.4 trillion in 2022, while the Bureau of Customs plans to collect P671 billion.

Gross domestic product (GDP) growth was 5.7% in 2021, revised upward from the 5.6% reported on Jan. 27, and above the government’s 5-5.5% target. The 2021 GDP represents a rebound from the 9.6% contraction in 2020.

Meanwhile, growth for the fourth quarter was 7.8%, against the 8.2% contraction in the year-earlier period.

The Philippines has received 76.44 million vaccines from the COVID-19 Vaccines Global Access (COVAX) and from bilateral donations, the DoF said, citing data from the UNICEF COVID-19 Market Dashboard.

Nearly 85% of donated vaccines or 65.33 million doses came from COVAX.

At the end of 2021, 63% of the target population was vaccinated, with 48.6 million people receiving full doses. As of April 11, this number had grown to 66.74 million, while 12.53 million individuals have received booster shots.

National government debt hit a record P12.09 trillion at the end of February. In 2021, the debt-to-GDP ratio hit a 16-year high of 60.5%. This is higher than the 60% threshold considered manageable by multilateral lenders for developing economies. — Tobias Jared Tomas