Government borrowings seen to further rise this year

MANILA, Philippines — The Philippine government may borrow more this year amid higher refinancing cost as interest rates rebound globally, according to S&P Global Ratings.

In a report titled “Sovereign Debt 2023: Asia-Pacific Central Government Borrowing to Fall Below $4 trillion,” S&P primary credit analyst Kim Eng Tan said that the long- and short-term commercial debt of the Philippines may hit $214.6 billion this year from $202.2 billion last year.

Of the total amount, the long-term commercial borrowings of the Philippine government may rise by 11 percent to $40 billion in 2023 from $36 billion in 2022, S&P said.

The Philippines borrows heavily from both onshore and offshore creditors to finance its swelling budget deficit as it continues to spend more than what it earns.

On the other hand, long-term commercial borrowings by governments in Asia-Pacific declined by nine percent to $3.8 trillion this year from $4.2 trillion in 2022.

“The decline in borrowing could have been sharper. However, the need to provide support for households and businesses in the face of strong inflation and higher interest rates limits the scope for fiscal consolidation. Consequently, borrowing this year is still well above the sub-$3 trillion levels of pre-pandemic years,” Tan said.

Estimates showed that nearly 70 percent or $2.7 trillion of Asia-Pacific sovereigns’ gross long-term commercial borrowings in 2023 will be used to refinance maturing long-term debt.

Tan said the declining borrowings by the governments of China and Japan account for much of the reduction this year.

The Chinese government’s borrowings are expected to drop by 2.7 percent to $1.24 trillion this year from $1.27 trillion in 2022, while those of Japan may decline by 13.6 percent to $1.78 trillion from $2.07 trillion.

On the other hand, the combined long- and short-term government borrowings in Asia-Pacific are expected to rise by 5.4 percent to $19.22 trillion this year from $18.24 trillion.

“We project Asia-Pacific commercial government debt will increase by almost $1 trillion, bringing the year-end total to $19.2 trillion,” S&P said.

It said the total commercial debt stock of Asia-Pacific governments fell to $18.2 trillion in 2022 from nearly $20 trillion in 2021 despite a surge in borrowings during the year.

“Last year’s fall was a result of sharp depreciations in the exchange rates of most economies in the region vis-à-vis the dollar. These depreciations caused the dollar value of domestic-currency-denominated government debts, especially in Japan, to shrink from a year ago,” S&P said.

Although government debt increased sharply in local currency terms, the debt watcher said the levels in dollar terms declined where exchange rate depreciations were relatively sharp.

The credit rating agency said most major Asia-Pacific governments are likely to borrow less this year.

It said budgetary transfers should fall in Australia and New Zealand as their economies recover and fiscal accounts continue to improve following pandemic-related shocks.

“In India, Indonesia, the Philippines and Thailand, we expect fiscal consolidation to take place amid normalization of economic activities with the receding impact of the pandemic,” S&P said.

It said most governments in Asia-Pacific will face higher interest rates.

“High inflation and associated rising interest rates have made financing in international markets a challenge. These sovereigns are likely to rely more on short-term domestic financing and official loans as a result,” it said.