Weakening peso may be good for gov’t, says DOF

The Department of Finance said the government’s fiscal position would stand to gain on a net basis from the weakening peso, citing the favorable impact of the currency’s movement on revenue collection.

The DOF acknowledged that the weakening peso could cause a spike in foreign debt servicing, but stressed that the resulting incremental revenue from the collection of import taxes and duties would be much higher.

Based on the DOF’s estimate, for every unit depreciation of the peso against the US dollar, the government may collect P8.4 billion in additional revenue, particularly from import tariff and duties.

On the other hand, based on data from the Bureau of the Treasury, interest payments on foreign debts may increase by just P2 billion for every unit depreciation.

The government agency has yet to give an estimate on the additional payments of principal foreign debts for every unit depreciation, but said this too would be much smaller than the incremental revenue.

The view that a weakening peso will upset the government’s finances “is a throwback to the economic crisis years, when the fiscal position was not as sturdy as it is right now,” Finance Assistant Secretary MariaTeresa Habitan told the Inquirer.

After closing at the 44-to-a-dollar territory on the last trading day of 2013, the peso now hovers in the 45 level.

The peso’s depreciation, along with the decline of other Asian currencies, was caused by the US Federal Reserve’s decision to scale back its stimulus program on views that the American economy is improving.

The Fed’s decision prompted some fund owners to dump emerging market assets in favor of dollar-denominated ones.

National Treasurer Rosalia de Leon also shrugged off concerns that the weakening peso would adversely affect the country’s ability to service its debts.

De Leon said the debt management strategies that the Treasury had implemented over the past few years had helped offset the effect of the peso’s depreciation.