The settlement in October of P80.8 billion in the first-ever retail dollar bonds (RDBs), plus sustained domestic borrowings, jacked up the national government’s outstanding debt closer to the P12-trillion mark.
The latest Bureau of the Treasury data on Wednesday showed that total obligations inched up by 0.46 percent to P11.97 trillion as of October from P11.92 trillion in September. Year-on-year, the debt stock jumped 19.4 percent from over P10 trillion in end-October 2020.
Locally sourced debt rose 0.96 percent month-on-month and 19.7 percent year-on-year to P8.47 trillion. The Treasury attributed these increases to net issuance of government securities, which meant the T-bills and bonds—including two RDB tranches—it sold in October exceeded maturities.
Domestic debt accounted for 71 percent of the end-October total, as the government relied more on local borrowings to take advantage of large amounts of liquidity in the financial system while avoiding risks from foreign exchange fluctuations.
Treasury data showed that P8.45 trillion or 71 percent of outstanding debt was denominated in the local currency.
External debt, meanwhile, declined 0.74 percent month-on-month to P3.5 trillion. But outstanding debt extended by multilateral lenders and bilateral development partners to the Philippines climbed 18.7 percent from P2.95 trillion a year ago.
The Treasury said the stronger peso in October against September reduced foreign debt month-on-month by P31.13 billion. The peso ended October at 50.552 against the US dollar from 50.879:$1 in September.
Also, net inflows from foreign loans in October were smaller at P4.96 billion, the Treasury added.
Borrowing types
In terms of type of debt instrument, P9.9 trillion of the end-October pile were in the form of government securities, and P2.07 trillion were concessional loans.
The bulk of outstanding loans will mature after over 10 years—P7.76 trillion or 64.8 percent of total had long-term maturity.
Medium-term debt or one- to 10-year maturities amounted to P2.76 trillion or 23 percent of total, while short-term obligations maturing in less than a year reached P1.45 trillion, accounting for 12.1 percent.
As debt accumulation outpaced economic growth, the end-September debt-to-gross domestic product (GDP) ratio climbed to a 16-year high of 63.1 percent, above the 60-percent threshold deemed by credit rating agencies as manageable among emerging markets like the Philippines.
As such, the Treasury slashed its domestic borrowings program for December to only P70 billion so that debt-to-GDP—which reflects a sovereign borrower’s capability to repay obligations—would end 2021 at the targeted 59.1-percent level, equivalent to P11.73 trillion in outstanding obligations.
Despite higher borrowings to beef up the government’s war chest against COVID-19, Finance Secretary Carlos Dominguez III told foreign business chambers last week that judicious debt management being practiced even before the pandemic struck allowed the government to reduce public debt costs. The latest Department of Finance data showed that the Philippines borrowed a total of $22.58 billion or P1.15 trillion to date, to fight the health and socioeconomic crises inflicted by the prolonged COVID-19 pandemic.
“Our average annual interest rate on domestic and external debt has declined from 6.3 percent in 2010 to 3.9 percent in September 2021. This reflects the country’s success in maintaining good macroeconomic fundamentals,” Dominguez said.
Also, Dominguez said debt affordability remained “manageable” due to the declining share of interest payments to revenue collections as well as government expenditures.
For Dominguez, the current debt level “remains eminently sustainable [as] the stability of the peso indicates this.”
“We expect to begin working down our debt by next year,” he said.