PH reliance on foreign funding declining


Moody’s Investors Service has cited the Philippines, among other emerging countries in Asia, for its 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—indicated the 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 also reduces the exposure of a government to foreign-exchange risks.

In the case of the Philippines, the government had the luxury of borrowing more from local sources given the excess liquidity in the domestic banking sector. The government’s shrinking budget deficit as a share of the gross domestic product (GDP) also aided the decline in the country’s 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 about 80 percent of the government’s total financing requirements while foreign borrowings accounted for the remaining 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 could 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 projected that for 2013, the total financing requirements of countries in the region would drop as a percentage of GDP. This forecast was anchored on expectations that the increase in their borrowing requirements would 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 this year from 7.6 percent last year.

The Philippines is 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 within this year.

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

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  • Hayek_sa_Maynila

    Yes it is declining but is the dependence low enough?

    Also, how about off-book accounts? Contingent liabilties? Are these really at safe levels?

    My sense is that there is still room to be less dependent on foreign funds, especially in short term derivatives, which are often not captured in the headline data.

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