Coronavirus foreign borrowings balloon to $7.76 billion as July starts

Ian Nicolas Cigaral - Philstar.com
Coronavirus foreign borrowings balloon to $7.76 billion as July starts
A UV Express at a terminal in Antipolo, Rizal is seen back in operation on June 29, 2020.
The STAR / Michael Varcas

MANILA, Philippines — Just before revenues can slowly pick up with economic reopening, foreign borrowings by the Duterte administration to fund a costly pandemic response sustained an uptrend at the start of July.

A total of $7.76 billion worth of foreign loans, grants and securities were signed as of July 1 since March when the coronavirus disease-2019 (COVID-19) prompted the government to embark on a large-scale fund-raising, finance department data showed.

The running tally jumped 9.3% from $7.1 billion recorded last June 4 when the government last released the data on its website. The tally represents borrowings already agreed upon by the Philippines and lenders, which may or may not have been credited to state coffers as of recording.

From June 4, the latest addition to the fund pool was a $458.95-million official development assistance (ODA) loan from Japan International Cooperation Agency signed last July 1. The loan carries a concessional lending rate of 0.01% per year, and includes a four-year grace period on payments.

Another addition to the coronavirus war chest were two credit lines extended by France’s Agence Francaise De Developpement (AFD) cumulatively worth $275.62 million. Both loans, signed on June 9, were co-financed with the Asian Development Bank (ADB).

Revenues from main collecting agencies, Bureaus of Internal Revenue and Customs, sank 16% year-on-year as of the first half, preliminary data showed, forcing a turn to more borrowings to keep the government and its programs running. A recovery looms however, as the finance department said “higher collections” were seen “beginning June.”

Before that can happen however, more borrowings essentially balloons the government’s debt pile, which as of May amounted to P8.89 trillion, Treasury data showed. Analysts said more liabilities are expected to be incurred. 

“Borrowings will increase further because they provide additional resources to pump life back to the economy. Without borrowings, developing countries will go through a protracted economic slowdown,” said Cid Terosa, dean of the University of Asia and the Pacific.

Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, agreed. “Without the borrowings, government plans and other important services may be hampered.”

ADB tops lender list

By creditor, Manila-based ADB is currently the government’s biggest lender for COVID-19 programs. The multilateral agency extended $2.61 billion of assistance so far, only $8 million of which were in the form of grants that the Philippines got for free. The rest are loans charged with interest, but lower than market rates. 

Next to ADB are proceeds from the government’s foreign bond sale. In April, the government raised $2.35 billion from offering offshore investors 10- and 25-year debt papers which they can hold into until maturity while getting paid 2.457% and 2.95% interest, respectively.

The World Bank also accounted for a huge share of funding for coronavirus programs. Based on the government’s tally, the Washington-based lender lent a total of $1.3 billion as of June 15 under concessional lending rates of below 1%.

Another major source of funds was the China-led Asian Infrastructure Investment Bank which loaned out $750 million to the government. The Japanese government also gave out $18.36 million to the health department for purchase of medical equipment.

“I am sure we shall soon prevail over this emergency. We will return to our growth path and recover our economic momentum,” Finance Secretary Carlos Dominguez III said in a separate statement on Wednesday.

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