Finance Secretary Carlos G. Dominguez III. Photo courtesy of DOF
MANILA, Philippines — The COVID-19 crisis has forced the Philippines to borrow a total of P1.22 trillion from January to April—already exceeding the P1.02 trillion in gross borrowings for the entire 2019.
In a statement Tuesday, Finance Secretary Carlos G. Dominguez III said the government remained prudent while it borrowed more money for COVID-19 response, hence sourcing the bulk locally, given a domestic financial system flushed with liquidity.
Citing a report from the Bureau of the Treasury, Dominguez said P982 billion or over four-fifths of the end-April gross borrowings were raised from selling treasury bills and bonds, on top of the P300-billion repurchase agreement between the Treasury and the Bangko Sentral ng Pilipinas (BSP).
The earlier Treasury report on the national government’s end-April financing did not include the repo.
The remaining P237 billion in foreign borrowings during the first four months came from offshore bond issuances as well as concessional loans from bilateral partners and multilateral lenders.
“Higher borrowings this year are crucial to letting the Duterte administration carry out a wide range of initiatives for the country to cope with the unexpected shocks unleashed by the COVID-19 pandemic and, before that, the eruption of the Taal Volcano,” Dominguez explained.
“The government has had to increase spending to implement its four-pillar socioeconomic strategy against COVID-19 even as strict mobility restrictions that national and local governments imposed since March to suppress the coronavirus’ spread had curtailed economic activity and led to a sizeable drop in the state’s revenue intake,” the Finance chief said.
“While the government is borrowing more than usual this year in order to fund healthcare, social protection and other essential programs while our revenues are down, we have to be careful about spending too much above our means,” he added.
As such, Dominguez reiterated the need to keep the budget-deficit cap at 9 percent of gross domestic product (GDP), which he described as “manageable and sustainable.”
Excluding the planned stimulus spending to fight COVID-19, the Cabinet-level Development Budget Coordination Committee (DBCC) had already projected this year’s budget deficit to balloon to P1.6 trillion or 8.4 percent of GDP.
“None of us knows how long this pandemic will last. As we have borrowed a lot—P1.22 trillion in just four months, to be exact—fiscal space should be saved to afford us elbow room in case future circumstances require a new round of big healthcare spending, subsidies and/or stimulus programs,” Dominguez said.
“Loans are not free money. They are advances that we, or even our children and their children, will have to pay for in some way in the future. The Duterte administration’s policy is to be careful not to borrow beyond sustainable levels, lest we fall into a vicious cycle of accumulating unmanageable debt, which might drastically increase our financing costs, and plunge us deeper into debt,” Dominguez added.
On Tuesday, the Treasury awarded P30 billion in new 10-year T-bonds at a coupon rate of 2.875 percent, below the 6.875 percent fetched by a similar tenor issued in January last year.
National Treasurer Rosalia V. de Leon attributed the lower coupon to still benign inflation, even as the June rate of increase in prices of basic commodities inched up to a three-month high of 2.5 percent year-on-year.
Bids for the treasury bonds reached P59.7 billion, making the auction nearly two times oversubscribed.
“The market is still awash with liquidity,” de Leon said.
Meanwhile, de Leon said the Treasury rescheduled the rate-setting auction for the upcoming retail treasury bond (RTB) offer to July 16 or Thursday next week, instead of July 15 as earlier announced.
In a webinar last week, London-based Capital Economics said the Philippines was among the economies that can tolerate higher debt levels in order to deal with the huge fiscal cost of the COVID-19 pandemic.
Amid weak revenues, the government planned to ramp up local and external borrowings, which will jack up outstanding debt to as much as P9.6 trillion this year, such that the projected end-2020 debt-to-GDP ratio of 49.8 percent shall be the highest since 2011.
As of end-May, the national government’s debt stock stood at a new record-high P8.9 trillion.