Borrowings to remain high despite forecast drop — S&P

MANILA, Philippines — Commercial long-term borrowings of the Philippines would remain high this year despite an expected sharp decline following a pandemic-driven surge last year, S&P Global Ratings said.

In its latest report titled “Sovereign debt 2021: Asia Pacific central government to borrow $4.1 trillion,” S&P said the commercial borrowing of the Philippines would fall by 40.6 percent to $32.3 billion this year after reaching $54.4 billion last year or 3.6 times the $15 billion borrowed in 2019.

Despite the decline, the total commercial debt of the Philippines, both long- and short-term, would inch up by 5.6 percent to $200 billion this year from last year’s $189.4 billion.

“S&P projects that Asia Pacific central government borrowings will remain high by historical standards in 2021 after a pandemic-driven surge in 2020. The sharply higher borrowing and the associated steep increase in government indebtedness was a reason behind the number of negative rating actions on some sovereigns in the region,” the debt watcher said.

The outstanding debt of the Philippines is expected to hit P11.98 trillion in 2021, translating to a high debt-to-gross domestic product (GDP) ratio of 58.3 percent from 54.5 percent in 2020, due to higher funding requirements in response to the COVID-19 pandemic.

If attained, the projected debt-to-GDP ratios in 2020 and 2021 would be the highest since the 58.8 percent recorded in 2006.

The Philippine government has been fortifying its war chest to respond to the impact of the COVID-19 pandemic, tapping foreign creditors, including multilateral lending agencies such as the Asian Development Bank (ADB) and World Bank, among others.

S&P said central governments in Asia Pacific are projected to borrow $4.1 trillion this year, about 11 percent lower than last year’s record $4.6 trillion.

“Even though it is a reduction from last year, sovereign commercial debt will still be well above the sub- $3 trillion levels in the few years leading up to 2019,” S&P said.

Although the fight against COVID-19 continues in 2021, the debt watcher said its burden on government finances is likely to be lower.

For one, S&P explained vaccines being rolled out in many countries should allow governments to rein in the disease and lower the infection rates globally sometime this year.

“In addition, having had about a year of experience dealing with the pandemic, most governments are better poised to limit the brunt of containment measures on their finances,” it said.

About 70 percent or $2.9 trillion of the sovereigns’ gross long-term commercial borrowings would be used to refinance maturing debt.

Net long-term commercial borrowings are seen hitting about $1.2 trillion this year, a little over half of the amount in 2020, but well above the $500 billion to $833 billion annually in 2016 to 2019.

The projected issuance this year would bring the Asia Pacific sovereign commercial debt stock to an equivalent of $22 trillion, up by about $1.4 trillion from 2020.