Finance Undersecretary Gil Beltran. (Photo from his Facebook page)
Despite warnings of a debt trap as the government dips into more Chinese and Japanese money to fund big-ticket infrastructure projects, the Department of Finance (DOF) yesterday expressed confidence that the sustained robust economic growth would outpace borrowings.
Specifically, Finance Undersecretary and chief economist Gil S. Beltran pointed to the country’s “prudent debt strategy” as the government tapped local sources more than offshore creditors.
“The country has been moving toward domestic debt in funding its deficit financing to reduce exchange risks. The share of external debt in total national government debt dropped from 47.4 percent [in 2004] to 36.1 percent [as of the third quarter of 2018],” Beltran said in an economic bulletin.
As such, the share of foreign debt to gross domestic product (GDP) also fell from a high of 66.6 percent in 2005 to 22.5 percent at end-June this year, lower than the latest external debt ratios of Indonesia, Malaysia, South Korea, Taiwan, Thailand and Vietnam, Beltran said.
The government had programmed a financing mix of 65 percent domestic, 35 percent foreign for 2018. For 2019 to 2022, borrowings will be 75 percent domestic, 25 percent foreign.
“Furthermore, all the projects being financed by external funds are subject to multiple agency evaluations such that only those projects with the highest economic rates of return are selected,” Beltran added.
Also, he pointed out that “external borrowings tapped for infrastructure had soft terms—low interest rates and long maturity.”
“The average interest rate on external borrowing by the national government is 4.3 percent as of July 2018 and average maturity is 22.6 years, longer than the economic life of most projects,” Beltran noted.
“Over the period 2004 to 2018, the country’s capacity to pay has improved, despite the rise in the stock of debt. That is because the economy has been outgrowing the accumulation of both domestic and external debt. By 2017, nominal GDP was P15.8 trillion, more than three times the 2004 nominal GDP of P5.1 trillion,” Beltran said. —BEN O. DE VERA