Government to rely on domestic borrowings, ODA for funding

MANILA, Philippines — The government will rely mainly on domestic borrowing and low-cost foreign financing to raise funds for its pandemic response and other budget needs this year, National Treasurer Rosalia de Leon said yesterday.

She said foreign borrowing costs are expected to increase with the ongoing taper policy and looming rate hikes in the US.

De Leon said the government has prepared for spikes in borrowing rates here and abroad as a consequence of the US Federal Reserve’s decision to tighten monetary policies.

“If the Fed raises its rates, dollar assets would magnet investors. Instead of getting peso assets, they would purchase dollar assets, and that could increase the borrowing costs of our issuances abroad,” De Leon told The STAR.

“In Europe, for one, they might already start unwinding their easy monetary policies [in response to the Fed’s tightening]. The benchmark rate for offshore issuances of about 1.7 percent should go up then as a result,” she said.

To offset this, De Leon said the government would depend for its financing on the domestic market and multilateral lenders through the auction of securities and acquisition of official development assistance (ODA), respectively.

De Leon said the four consecutive months of easing inflation from September to December last year bodes well for the government in its effort to borrow from local investors.

Inflation or the general increase in commodity prices fell to a 12-month low of 3.6 percent in December, although inflation for 2021 averaged 4.5 percent and exceeded the government’s target range of two to four percent.

“We saw that the trend is going down for inflation after we overcame supply bottlenecks caused by the African swine fever and typhoons. We saw that inflation went back to within target range and, at the same time, we saw that rates were kept at their record lows,” De Leon said.

As such, the government has room to maintain an accommodative policy unlike in the United States. The US recorded its highest inflation since 1982 in November 2021 at 6.8 percent, pushing the Fed to speed up its taper policy and to forecast at least three rate hikes this year.

“There is room for us to be accommodative. In the case of the Fed, US inflation peaked. There’s the urgency for it to act now,” De Leon said.

Further, De Leon said the P300 billion provisional advances from the Bangko Sentral ng Pilipinas (BSP) for 2022 would expand state resources that can be tapped in the event that borrowing costs jump on the Fed’s tightening.

Also, the economic team projects that revenue collections will improve over time as soon as the Philippines hits herd immunity and industries reopen to full capacity.

The Cabinet-level Development Budget Coordination Committee wants to cut the fiscal deficit to 7.7 percent of the economy this year from an outlook of 8.2 percent in 2021. Moving forward, it expects the deficit Gov’t to shrink to 6.1 percent in 2023 and 5.1 percent in 2024.

“We are getting P300 billion from the BSP this year. We are acquiring ODAs, we are recovering collections. Hopefully, collections will be good in 2022 after we ended up in a good cash buffer last year. There’s no rush for us then to accept high yields from borrowings,” De Leon said.