THE Finance department expects the full disbursement of the $750- million loan from the Beijing-based Asian Infrastructure Investment Bank within June. — REUTERS

THE Philippine government has so far raised over $6.508 billion from loans and grants to fund its efforts to control the coronavirus disease 2019 (COVID-19) outbreak and programs to address the economic fallout.

This as the Department of Finance (DoF) on June 5 signed an agreement with the Asian Infrastructure Investment Bank (AIIB) for a $750-million loan. The DoF expects the loan to be fully disbursed within the month.

“The loan package from the AIIB will help augment our funding requirements necessary to mitigate the severe negative impact of COVID-19 on our people and our economy,” Finance Secretary Carlos G. Dominguez III said in a statement released on Tuesday.

The loan is part of AIIB’s share in co-financing the Philippines’ COVID-19 Active Response and Expenditure Support (CARES) program with the Asian Development Bank (ADB).

Data from the DoF showed $5.758 billion was raised from a combination of loans, global bonds and grants as of June 4. Broken down, $5.65 billion in budgetary support financing came from multilateral lenders and the issuance of global bonds, while $108 million was in the form of grants and project loans.

Around 72% or $4.05 billion from budgetary support financing was credited to the National Treasury.

On June 4, the government signed a $400-million loan agreement with the ADB, the proceeds of which will be used to “address key constraints that have limited the growth of domestic capital markets, especially government and corporate bond markets.”

The latest loan brought ADB’s total lending to the Philippines to $2.1 billion so far this year, following the $1.5-billion loan extended for the government’s pandemic response and the $200 million in additional funding for the social protection program.

On June 3, the government inked the deal for the $500-million Emergency COVID-19 Response Development Policy Loan from the World Bank. This was separate from a $500-million loan it obtained from the Washington-based multilateral lender in April.

The World Bank also provided $100 million for the COVID-19 Emergency Response Project early last month, while the ADB extended $8 million worth of grants in March.

In late April, the government sold $2.35 billion in dollar-denominated global bonds: $1.35 billion in 25-year bonds with a coupon of 2.95% and $1 billion via 10-year notes at 2.457%.

DEBT LEVEL
World Bank Senior Economist Rong Qian said the Philippines is “one of the few” countries in the region that have low public external debt.

While a debt-to-gross domestic product (GDP) ratio of 50% is considered a safe level for a borrower, Ms. Qian warned exceeding the debt stock past 60% of GDP could hamper economic growth as a bigger chunk of the budget will be used to repay debt.

“If you borrow above the 60% of GDP, the growth could suffer because eventually you pay more, in terms of repayment and interest rate which would be taxed from the consumer. Fifty percent (of GDP) is still a good safe number, so in principle, the government could borrow more, but subject to their own legislative limitations,” she said in a press briefing on Tuesday.

Amid the coronavirus crisis, the Development Budget Coordination Committee sees the debt-to-GDP ratio to expand to 49.8% this year and to 51.5% by 2021, from a record low of 39.6% in 2019.

Meanwhile, Capital Economics said the Philippines is one of several Asian economies whose debt levels may reach beyond 60% of their GDP in 2020.

“There are a few places, namely the Philippines, Thailand, Vietnam and Malaysia, where the crisis is likely to push national debt above 60% of GDP by the end of the year,” Capital Economics said in a note sent to reporters on Monday.

“A period of austerity will be needed after the crisis is over to bring government debt down to more comfortable levels, dragging on the recoveries.”

Capital Economics said the region showed a bottoming out of activities in April and the continued slump in output despite the gradual lifting of lockdown measures.

“Vietnam, Taiwan and Korea are the only countries where the number of people at work has returned to pre-crisis levels. Elsewhere, the recovery broadly follows the degree to which lockdowns have been eased, which in turn relates to how successfully countries have contained the virus,” it added.

Most areas in the country have transitioned into a modified general community quarantine while Metro Manila and some nearby regions are under general community quarantine, allowing a gradual resumption for some business activities.

However, the country has yet to see a “flattening of the curve.” As of Monday, health officials reported 579 new cases bringing the total to 22,474. The death toll has reached 1,011 while recoveries stood at 4,637.

Capital Economics said that economic recovery is likely going to be gradual.

“We don’t think it will be until the middle of next year that regional GDP regains its pre-crisis level of output and even by the end of 2022 aggregate GDP for the region will still be around 3% lower than it would have been had the crisis not happened,” the report said.

The country’s GDP has dropped by 0.2% in the first quarter which is its first contraction since 1998. Economic managers expect a -2% to -3.2% decline in the economy due to the worsening fallout from the virus. — B.M.Laforga and L.W.T. Noble

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