‘Rise in rates will not affect fiscal consolidation’

MANILA, Philippines — The head of the economic team of the Marcos administration is confident that the elevated interest rates globally will not have a significant impact on the country’s fiscal consolidation plan.

During the Philippine Economic Briefing in Frankfurt, Germany late Monday, Finance Secretary Benjamin Diokno said the high borrowing costs would only have limited effect on the fiscal consolidation efforts of the government.

Such a fiscal consolidation plan, however, remains missing after a semester under the new administration.

Nonetheless, Diokno said one of the reasons for the limited effect is that only a small fraction of the outstanding debt is exposed to interest resetting this year and the next.

Resetting interest means that a new rate will be imposed on a borrower, the Philippine government for instance, to be paid on the principal of variable interest rate loans.

“Second, we already anticipated the tightening of monetary policy conditions when we formulated the interest payments in the 2023 budget,” Diokno said.

Based on the Budget of Expenditures and Sources of Financing, 11.6 percent of the P5.268 trillion 2023 budget or equivalent to P611 billion will be allocated to pay off debts this year.

The 2023 debt burden amount includes P582.3 billion for interest payments and P28.7 billion for net lending. These two are the proper measures of the debt burden component of the budget.

In terms of debt service, the government targets to settle a record-high P1.6 trillion in debts, divided into P582.32 billion for interest payments and P1.02 trillion for principal amortization.

“The third one is that our government securities market is dominated by local players that are bank-centric and homogeneous in investment,” Diokno said.

For 2023, the government intends to borrow P2.207 trillion, 75 percent of which will come from domestic lenders and the remaining 25 percent from foreign sources.

Diokno said the government is confident that the Philippine economy has the ability to navigate the post-pandemic world amid global conditions.

“We have seen much more serious problems in the past and we have demonstrated that we can solve them,” Diokno said.