Dominguez: P91-B shortfall as result of COVID-19 to be financed by borrowing

The government estimate of a revenue shortfall from COVID-19’s impact is around P91 billion which Finance Secretary Carlos G. Dominguez III said could be replaced by borrowings.

Dominguez last Tuesday said the budget deficit could take a hit from slower imports from China and sales of local businesses at the start of 2020 and could reach as much as 3.6 percent of gross domestic product, surpassing the 3.2 percent ceiling.

The government aims to collect a total of P3.5 trillion in tax and non-tax revenue in 2020.

Dominguez, at a press briefing after the Economic Development Cluster (EDC) meeting, said an increase in borrowings would provide financing for the increased deficit.

“Our credit rating is quite robust and we don’t expect any difficulty in covering a potential deficit” as a result of COVID-19, he said.

The bigger deficit, he said, was “financeable” because the country’s investment-grade credit rating makes borrowing cheaper.

The government planned to borrow a record P1.4 trillion—75 percent domestic and 25 percent foreign—in 2020 to finance the deficit.

Dominguez added that the government will not have to scrimp on spending on public goods and services, which had been programmed to reach P4.2 trillion this year.

He said the government will continue rolling out massive infrastructure projects under the ambitious “Build, Build, Build” program.

“We will keep the expenditure budget where it is even as revenues are going down,” Dominguez said.

National Treasurer Rosalia V. de Leon told the Inquirer on Wednesday (March 11) that the additional borrowing to offset the lag in revenue collections “could be funded from onshore and external borrowings, including commercial issuances.”

De Leon said the timing for these borrowings would “depend on market conditions.”

The Bureau of the Treasury had temporarily deferred its planned issuance of renminbi-denominated panda bonds in March, even as demand for government securities in the onshore market remained strong.

After selling euro bonds last January, the Philippines was on wait-and-see mode regarding plans to issue dollar-denominated global bonds and yen-denominated samurai bonds during the first half of 2020.

Last Monday, De Leon said the second half of the year likely “would be the timing for more aggressive collections” of the bureaus of Customs (BOC) and of Internal Revenue (BIR), the country’s two biggest revenue agencies.

Since February, 66 firms mostly in the tourism and manufacturing sectors either temporarily closed down or implemented flexible work arrangements as the COVID-19 outbreak slowed tourist arrivals and delayed raw material imports subjected to quarantine.

But on Wednesday, Dominguez said he received word from one of the major port operators that the container import volume from China was “starting to move back up” in early March.

The Department of Finance (DOF) had reported that the volume of imported goods from China dropped 44 percent year-on-year in February.

Last year, China was the Philippines’ top trading partner—the biggest import source and third-largest export market.

In a March 10 report, London-based Capital Economics said tourism and trade-dependent economies like Cambodia, Hong Kong, Singapore and Thailand and those with close supply chain links to China such as Malaysia, South Korea, Taiwan and Vietnam will be “worst hit” by the economic fallout from the spread of COVID-19.

“While Indonesia, India and the Philippines are unlikely to be hit as hard, they will also feel the impact on domestic demand,” Capital Economics senior Asia economist Gareth Leather said.

Edited by TSB