Government clips foreign borrowings in H1

Declines 39% to $5.64 billion

MANILA, Philippines — Bangko Sentral ng Pilipinas (BSP)-approved foreign borrowings by the national government fell by 38.8 percent to $5.64 billion in the first half from $9.22 billion in the same period last year as the country limited its reliance on offshore creditors for more funds to finance its pandemic response measures.

Based on BSP data, public sector foreign borrowings approved by the Monetary Board plunged by 59 percent to $2.8 billion from April to June compared to $6.84 billion in the same period last year.

The foreign borrowings in the second quarter consisted of the euro-denominated bonds amounting to $2.5 billion in April to finance the national government’s general financing requirements and a project loan amounting to $300 million to procure and distribute COVID-19 vaccines.

For the first quarter, foreign borrowings went up by 19.3 percent to $2.84 billion from $2.38 billion in the same quarter last year.

Almost a third, or $900 million, of the total foreign borrowings from January to March went to the government’s COVID-19 response measures, particularly the procurement and distribution of vaccines.

Another 28 percent, or $798 million, was set aside to refinance the government’s existing obligations and general financing requirements, while 21 percent, or $600 million, was allocated for disaster resilience programs.

Likewise, $300 million was set aside for social protection, $138 million for public transport improvement and $105 million for maritime safety.

The BSP said around half of the amount, or $1.44 billion, was in the form of project loans, while $600 million was in the form of program loans.

The central bank also approved the national government’s two bond issuances worth $798 million.

All foreign loans to be contracted or guaranteed by the government needs prior BSP approval under Section 20, Article VII of the 1987 Constitution.

Likewise, all foreign borrowing proposals by the national government, government agencies and government financial institutions have to be submitted for approval-in-principle by the Monetary Board before commencement of actual negotiations as mandated by the Letter of Instructions 158 issued in January 1974.

“The BSP promotes the judicious use of resources and ensures that external debt requirements are at manageable levels, to support external debt sustainability,” the central bank said.

BSP-approved foreign borrowings by the national government surged by 82.5 percent to $17.7 billion in 2020 from $9.7 billion in 2019 as the pandemic-induced recession resulted in lower revenue take and higher spending for COVID-19 response measures.

After increasing by 18 percent to $98.49 billion last year, the country’s external debt slipped by 1.5 percent to $97.05 billion in the first quarter as the government paid more foreign obligations.

Year-on-year, the country’s external debt stock went up by 19.2 percent from $81.42 billion in end-March last year as the government borrowed more to bankroll its COVID-19 response measures.

The national government accounted for more than 89 percent, or $50.8 billion of the total public sector debt, while government-owned and controlled corporations, government financial institutions and the BSP cornered the remaining 11 percent or $5.9 billion.

On the other hand, the external debt of private companies amounted to $40.3 billion from January to March.

The national government borrows heavily from foreign and domestic creditors to finance the country’s budget deficit as it spends more than what it actually earns.

The country’s budget shortfall ballooned as the recession pulled down revenue collections, while spending soared to finance COVID-19 response measures.