Gov’t to prepay $300M in loans

The government will prepay this year $300 million worth of loans owed to the Asian Development Bank.

National Treasurer Rosalia de Leon said the government deemed it prudent to prepay some of its foreign currency-denominated debt to take advantage of low interest rates and the country’s substantial foreign exchange reserves.

The government will have to borrow from the domestic market, which charges nearly historic-low interest rates, and use the proceeds to buy dollars from the Bangko Sentral ng Pilipinas. The dollars will then be used to settle the loans. Alternatively, the government may also use untapped portions of the national budget to buy dollars from the BSP and prepay the foreign currency-denominated debts.

De Leon said that in its review of the government’s borrowing portfolio, the Bureau of Treasury identified several loans in the form of official development from the ADB. Loans fit for prepayment are those that carry interest rates that are higher than existing rates and those whose terms allow for prepayment.

De Leon said the $300 million covered several loans from the ADB, although a significant share of the amount was accounted for by a loan that was meant to finance a food security program in the country.

The BSP manages nearly $84 billion in foreign-exchange reserves.

De Leon said state-owned firms were also being encouraged to look for foreign currency-denominated debts that could be prepaid. Michelle V. Remo