Gov’t faces costlier pandemic debts

MANILA  -Rising interest rates could make it more expensive for the Philippine government to repay its pandemic-related debts, most of which have short payment terms and are falling due soon, Moody’s Analytics said.

“High interest rates will stress the government’s ability to service its debt as it will increase the cost of borrowing to repay these debts,” Sarah Tan, economist at Moody’s Analytics, said in response to emailed questions.

“The Philippines’ fiscal health is tenuous. In general, higher interest rates are unfavorable as it increases the repayment burden,” she added.

To fund its costly pandemic response, the government was forced to go on a borrowing spree that pushed its liabilities, as a share of the economy, above levels deemed manageable.

READ: PH debt stock reached new high of P14.35T at end-August

Not only did the government have to deal with a fat debt stock that bloated to P14.35 trillion as of August, most pandemic-related obligations that piled up at the height of the health crisis have short payment terms after the state tried to avoid paying high rates that are typically charged for longer-dated debts.

As of end-2020, the latest Treasury data available, existing debts are payable by 7.57 years on average.

Apart from using revenues, the government may also borrow from creditors to refinance its debts.

But the aggressive rate hikes by the Bangko Sentral ng Pilipinas (BSP) to fight inflation have created a high interest rate environment that is causing problems for a government that has to bridge a projected P1.5-trillion budget gap this year.

READ: PH budget deficit seen further narrowing in 2023, 2024

Earlier this week, the Treasury was unable to raise its target amount of P15 billion via the sale of Treasury bills after investors asked for higher yields.

Analysts have said BSP Governor Eli Remolona Jr.’s hint at a possible resumption of monetary policy tightening would likely push rates higher in the coming months. This was after inflation sizzled to a four-month high of 6.1 percent in September, which moved the government further away from hitting its 2 to 4 percent target.

But the government was able to fully borrow the planned amount of P30 billion via Treasury bonds at Tuesday’s auction, which analysts say may be an indication of the government’s current preference for longer-dated debt paper so that more resources can be used for social programs instead of settling liabilities.

Moving forward, Tan said the Marcos’ administration’s efforts to cut debts, while sluggish, should help improve the government’s fiscal health in the next few years.

“Large fiscal deficits and high government debt are the recipe for a slowdown in fiscal consolidation. But looking ahead, we expect the country’s fiscal position to improve from next year as the government’s medium-term fiscal framework gains traction,” she said.