Weak dollar to ease PH debt burden

The weaker dollar will likely ease the Philippines’ debt burden even as the country ramps up foreign borrowings to raise money to fight COVID-19, debt watcher Moody’s Investors Service said Monday.

“For sovereigns whose foreign-currency liabilities comprise a large share of total government debt, a weaker dollar could lessen debt servicing costs on existing foreign-currency exposures in local-currency terms. However, the deterioration in fiscal metrics resulting from the pandemic shock more than offsets the potential benefit,” Moody’s said in a report titled “Prolonged dollar weakness would have limited effects on Asia excluding Japan issuers.”

“For example, Sri Lanka, Indonesia and the Philippines could potentially reap significant savings from the weaker dollar. Each of these countries has foreign-currency shares of more than a third of total debt, much of which they have incurred in market-based terms,” Moody’s said.

Of the national government’s outstanding debt amounting to P9.6 trillion as of August, P2.9 trillion were external obligations.

The government had programmed to borrow a record P3 trillion this year, of which a gross of P785.6 billion will be sourced from the offshore commercial market as well as loans from bilateral partners and multilateral lenders.

As of Oct. 2, the Department of Finance raised from foreign sources a total of $9.29 billion in budgetary support financing for COVID-19 response.

Not only the government but also Philippine banks stand to gain from the US dollar’s weakness.

“While net interest margin for Asian lenders has come under pressure because of lower loan yields, this is somewhat offset by the resulting decline in funding costs. Some banks in Singapore, Thailand and Philippines have already taken advantage of the weaker US dollar and low interest rate environment to issue dollar-denominated bonds to shore up their capital and secure longer-term financing at lower rates,” Moody’s said.—Ben O. de Vera INQ