Amid pandemic, PH borrowed a record P2.74 trillion in 2020

MANILA, Philippines — The Philippines borrowed a record P2.74 trillion in 2020 to fight the health and socioeconomic crises inflicted by the COVID-19 pandemic.

The latest Bureau of the Treasury data showed that gross domestic borrowings cornered the bulk or 73 percent of last year’s total, amounting to P1.99 trillion—the biggest yearly financing sourced from the sale of treasury bills and bonds to date.

Last year, the amount raised from retail treasury bonds (RTBs) sold to small investors reached P833.6 billion; from fixed-rate T-bonds, P701.7 billion; and short-dated T-bills, a net of P463.3 billion.

Gross external financing, meanwhile, amounted to P742.4 billion in 2020, also the highest annual amount borrowed from foreign sources on record.

Program loans from multilateral lenders and bilateral development partners last year reached P375.2 billion, on top of P49.1 billion in project loans.

The Philippines also raised P250.8 billion from two issuances of US dollar-denominated global bonds, plus P67.3 billion in euro bonds.

Prior to the pandemic, the national government borrowed P1.02 trillion in 2019—P693.8 billion locally and P321.9 billion externally.

The 2020 borrowings exceeded the combined financing raised in 2018 and 2019 totaling P1.91 trillion, and nearly matched the preceding three years’ total of P2.82 trillion if 2017 borrowings were included.

In the Treasury report, the repayments for short-term debt extended by the Bangko Sentral ng Pilipinas (BSP)—amounting to P300 billion paid in September last year, and then a bigger P540 billion settled last December—were excluded from the gross domestic borrowings figure.

In January, the BSP again extended a P540-billion cash advance to the national government.

In a Feb. 24 report, the Washington-based Institute of International Finance (IIF) noted that across emerging markets, the Philippines and Indonesia were only among the handful whose central banks provided direct support in fiscal deficit financing.

Amid a prolonged pandemic-induced recession putting pressure on debt and fiscal sustainability, “deep domestic financial systems can help insulate emerging markets from shocks,” said IIF deputy chief economist Elina Ribakova, as well as economists Benjamin Hilgenstock and Jonathan Fortun in their report titled “Deep Local Financial Markets Provide Backstop.”

“In the aftermath of the initial COVID-19 shock, emerging markets, particularly those with investment-grade credit ratings, have been able to access international bond markets at longer maturities and lower costs than in the past.

Foreign investors have also increasingly accessed local markets for emerging market debt. However, the bulk of financing continues to be provided by domestic financial institutions,” the IIF said.

Last Friday, Finance Secretary Carlos Dominguez III said the government was “not averse to using our good credit rating for us to overcome this pandemic.”

For 2021, the national government had programmed to borrow a higher gross amount of P3.03 trillion, of which P2.58 trillion will be sourced from the domestic debt market, while foreign borrowings will amount to P442.4 billion.

“We are very optimistic that we can easily fulfill our funding requirement for this year on the back of our healthy domestic liquidity situation. We also have available policy tools to sustain a low-interest rate environment. As our credit ratings remain better than our peers, we continue to have good access to official development assistance (ODA) and external commercial loans,” Dominguez said in a speech.

These additional borrowings will further jack up the debt-to-gross domestic product (GDP) ratio—a measure of a country’s capacity to pay its creditors—to 57 percent by end-2021, from the 14-year high of 54.5 percent in 2020.

Despite a higher debt ratio, Dominguez said it remained a “sustainable threshold,” citing that “some advanced economies had much higher debt ratios even in the best of times.”

“We prioritized domestic financing followed by ODA and the international capital markets. We determined this plan as the most prudent approach, ensuring sustainability in our debt service,” Dominguez said.

“Our sustained effort at fiscal consolidation was recognized through a series of credit rating affirmations amid the pandemic. We were able to quickly access emergency loans to fund our fiscal deficit. The financing we secured from our development partners and the commercial markets were at very low rates, tight spreads, and longer repayment periods. The credit rating affirmations helped us bring down our average interest rate per annum from 5.5 percent in 2019 to 4.7 percent in 2020 for domestic debt; and from 4 percent to 3.1 percent for external debt,” Dominguez added.

“The Duterte administration places paramount importance on the preservation of our long-term financial viability. It is through this prioritization that the market allows us to continue borrowing at favorable terms for the Filipino people,” according to Dominguez.

For Dominguez, “the present economic downturn cannot be fully confronted by throwing subsidies at everything in sight” as doing so “would only fuel inflation without driving expansion” as well as “will bring us to a debt crisis farther down the road.”

JE