Gov’t borrowings swelled to P 1.22T in end-April

Finance Secretary Carlos G. Dominguez III

The COVID-19 crisis has forced the Philippines to borrow a total of P1.22 trillion from January to April—already exceeding the P1.02 trillion in gross borrowings for the entire 2019.

In a statement Tuesday, Finance Secretary Carlos G. Dominguez III said the government remained prudent while it borrowed more money for COVID-19 response, sourcing the bulk locally especially since the domestic financial system is very liquid.

Citing a report from the Bureau of Treasury, Dominguez said P982 billion or more than four-fifths of the end-April gross borrowings were raised from the sale of treasury bills and bonds, on top of the P300-billion repurchase agreement between the Treasury and the Bangko Sentral ng Pilipinas.

The remaining P237 billion in foreign borrowings during the first four months came from offshore bond issues as well as concessional loans from bilateral and multilateral lenders.

“Higher borrowings this year are crucial to letting the Duterte administration carry out a wide range of initiatives for the country to cope with the unexpected shocks unleashed by the COVID-19 pandemic and, before that, the eruption of the Taal Volcano,” Dominguez explained. “The government has had to increase spending to implement its four-pillar socioeconomic strategy against COVID-19 even as strict mobility restrictions that national and local governments imposed since March to suppress the coronavirus’ spread had curtailed economic activity and led to a sizeable drop in the state’s revenue intake.”

While the government is borrowing more than usual this year in order to fund healthcare, social protection and other essential programs while revenues were down, he said the government was careful about spending too much above its means.

Dominguez reiterated the need to keep the budget-deficit cap at 9 percent of gross domestic product (GDP), which he described as manageable and sustainable.

Excluding the planned stimulus spending to fight COVID-19, the Cabinet-level Development Budget Coordination Committee had already projected this year’s budget deficit to balloon to P1.6 trillion or 8.4 percent of GDP.

“None of us knows how long this pandemic will last. As we have borrowed a lot—P1.22 trillion in just four months, to be exact—fiscal space should be saved to afford us elbow room in case future circumstances require a new round of big health-care spending, subsidies or stimulus programs,” Dominguez said.

“Loans are not free money. They are advances that we, or even our children and their children, will have to pay for in some way in the future. The Duterte administration’s policy is to be careful not to borrow beyond sustainable levels, lest we fall into a vicious cycle of accumulating unmanageable debt, which might drastically increase our financing costs and plunge us deeper into debt,” Dominguez added.

On Tuesday, the Treasury awarded P30 billion in new 10-year bonds at a coupon rate of 2.875 percent, below the 6.875 percent fetched by a similar tenor issued in January last year.