Fiscal prudence still the norm despite huge borrowings to fight COVID

Sustained confidence in the Philippine economy despite a pandemic-induced recession allowed the government to borrow from the offshore bond market at low rates to fund COVID-19 response, the Department of Finance (DOF) said on Tuesday.

Even as the government ramped up foreign borrowings to offset weaker revenue collection, Finance Secretary Carlos Dominguez III said in a statement that “fiscal prudence will continue to be the norm under the Duterte administration despite the many populist excuses to blow up the deficit and bury future generations in debt.”

The economic team expects to end 2020 with a narrower budget deficit of P1.38 trillion, equivalent to 7.6 percent of gross domestic product (GDP) and lower than the programmed P1.82 trillion or 9.6 percent of GDP amid slower government spending and improving revenues during recent months.

For 2021, the budget-deficit program is P1.78 trillion or 8.9 percent of GDP, while for 2022, a smaller P1.64 trillion or 7.3 percent of GDP.

Dominguez said the programmed budget deficit-to-GDP ratios for the next three years would keep the Philippines in the median of its Asean (Association of Southeast Asian Nations) neighbors as well as other emerging markets with similar investment-grade credit ratings.

“Considering that we are now in a low-interest global financing environment, the Philippines is in a very strong debt-management position,” Dominguez said.

Owing to “the Philippines’ strong fiscal position and favorable credit profile, which has remained at a high-investment grade rating of ‘BBB+’ in a sea of credit-rating downgrades and negative outlook revisions worldwide amid the global economic turmoil,” Dominguez said the government was able to tap the commercial markets “at very low rates and tight spreads” this year.

In January, the Philippines began its foreign fund-raising by selling 1.2 billion euros (about $1.33 billion) in euro-denominated bonds across two tenors and at zero coupon for the shorter three-year tenor.

Amid the pandemic, the Philippines also raised money by issuing US dollar-denominated global bonds twice this year—$2.35 billion in April at the height of the longest and most stringent COVID-19 lockdown in the region plus a bigger $2.75 billion this month.

The proceeds from these dollar bonds formed part of the $12.72 billion in foreign borrowings for budgetary support financing of the government’s COVID-19 response as of Dec. 15.

In all, the Philippines obtained $13.36 billion in foreign loans and grants as of mid-December to finance the fight against the health and socioeconomic crises inflicted by COVID-19.