PH, other countries hailed for less dependence on foreign funds

By: Michelle V. Remo, March 1st, 2013 03:04 PM

MANILA, Philippines—Moody’s Investors Service has cited the Philippines and other emerging markets in Asia for their  declining dependence on foreign funds to support government operations.

In one of its latest reports, Moody’s said the dwindling reliance of the Philippines and its neighbors on foreign funds—made possible partly by substantial liquidity in their domestic economies—facilitates improvement in their financial conditions.

“This relatively low dependence on foreign-currency-denominated external financing imparts stability to government finances,” Moody’s said in the report released Friday titled “Emerging Asia 2013 Government Financing Needs: Funding to Remain Mainly Local Currency.”

Lower dependence on foreign funds reduces exposure of a government to foreign-exchange risks.

In the case of the Philippines, the government has had the luxury of borrowing more from domestic sources given enormous liquidity parked in the domestic banking sector. Moreover, the government’s falling budget deficit as a share of gross domestic product also aided the decline in dependence on foreign financing.

Since the height of the country’s fiscal problem in 2004, the Philippine government has been keeping the share of foreign borrowings small relative to domestic borrowings. Last year, domestic borrowings accounted for roughly 80 percent of the government’s total financing requirements, while foreign borrowings accounted for the smaller balance of about 20 percent.

For this year, the government intends to continue observing a borrowing mix that is highly in favor of domestic funds.

Similarly for the entire region, Moody’s said, the bulk of borrowing requirements is expected to be met by tapping local currency-denominated credit.

“Local currency issuance should cover 94 percent of the group’s financing needs, highlighting a proclivity and ability to rely on domestic markets due to generally low gross financing needs,” Moody’s said.

Moody’s projects that in 2013, the total financing requirements of countries in the region will drop as a percentage of GDP. This forecast is anchored on expectations that the increase in their borrowing requirements will be slower compared with the growth of their economies.

Total financing needs of the emerging Asia region is projected to hit 13.8 percent of the group’s GDP this year, lower than the 14.5 percent of GDP registered last year.

For the Philippines alone, its borrowing requirement is estimated to fall to 6.6 percent of GDP this year from 7.6 percent last year.

The Philippines is currently assigned a rating of Ba1 by Moody’s. The rating is just a notch below investment grade. Capital market players expect the country to get an investment grade rating within the year.

Moody’s said that besides improving debt metrics, governance reforms are providing a lift to the country’s image among investors.

“Additionally, sound government policies—most notably in Philippines, Indonesia, and Thailand—have helped bolster investor confidence as well,” Moody’s said.

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