Gov’t urged to buy back foreign debts

Photo by INQUIRER.net

The government has been urged to buy back foreign debts and use the resulting savings to fund some of the post-calamity reconstruction initiatives in the country.

With the huge domestic savings parked in banks, estimated at about P5 trillion, an economist said the government had the leeway to sell a substantial amount of bonds to the domestic market and then use the proceeds to buy back foreign liabilities.

Victor Abola, economist from the University of Asia and the Pacific (UA&P), said the government could save nearly P5.8 billion in debt servicing if it would buy back $1 million worth of foreign loans.

Abola suggested that the Philippines buy back $12 billion worth of foreign debts over the next four years in order to reduce its debt-to-GDP ratio to 30 percent.

The national government alone has about $44 billion in external liabilities.

Abola explained that the buyback of foreign loans, which results in the outflow of dollars from the country, could temper an appreciation of the peso or even cause a depreciation of the local currency.

In turn, a depreciation of the peso results in savings for the Bangko Sentral ng Pilipinas, which normally spends on dollar purchases when the appreciation of the peso needs to be tempered.

Abola said the government particularly saves P39.5 billion for every one unit depreciation of the peso against the US dollar.

“There is a lot of liquidity in the economy that the government can take advantage of,” Abola said in a press briefing where he presented his study.

According to a calamity assessment report released by the National Economic and Development Authority (Neda) last week, the government’s recovery plan needed P360.8 billion worth of funding.

The amount will cover the rebuilding of shelter for the affected families and the reconstruction of damaged infrastructure, among others, following the devastation caused by Supertyphoon “Yolanda” in November.

A portion of the amount will be met by internal funds of the government while the balance will be covered by loans.

Abola said savings from the buyback of foreign loans could be used to partly fund the recovery plan so that the government would not need to borrow that much.
Meantime, Abola said the buyback of foreign debts would also help further boost the country’s credit standing.

The Philippines this year got minimum investment grades from major international credit-rating agencies partly because of the government’s declining debt as a proportion of the country’s gross domestic product (GDP).