Despite foreign borrowings done in the past four months to support government efforts to address the impact of the coronavirus pandemic, the Bangko Sentral ng Pilipinas (BSP) yesterday assured the public external debt is expected to remain “manageable.”
Benjamin Diokno, BSP governor, said the economy continues to have the capability to service its maturing foreign obligations.
“The country’s external debt ratio remains one of the lowest among Asian countries,” Diokno said.
In addition to monetary policy easing and liquidity measures since the implementation of various community lockdown since March, the Monetary Board approved $5.6 billion in foreign borrowings as of July this year.
The borrowings were sourced from the Asian Development Bank ($2.6 billion), World Bank-International Bank for Reconstruction and Development ($1.5 billion), Asian Infrastructure and Investment Bank ($750 million), Japan International Cooperation Agency ($477 million), and from Agence Francaise de Developpement ($295 million).
“While the country’s outstanding external debt will increase to the extent of the foreign borrowings that will be obtained by government, we would like to assure the public that the impact of these borrowings on key metrics is manageable and sustainable in view of the favorable terms extended by the creditors,” Diokno said.
Diokno explained the Philippines entered the period of health quarantines with “a robust external debt position.”
BSP data showed the country’s external debt stood at $81.4 billion at end-March 2020, down by $2.2 billion from the $83.6 billion recorded in December 2019.
The first quarter 2020 external debt figure, according to Diokno, represented 21.4 percent of the country’s gross domestic product (GDP), much lower than the 57.3 percent recorded 15 years earlier.
“To be frank, this is a good number as external debt was nearly at 60 percent of GDP 15 years ago. The latest ratio indicates a sustained strong position to service foreign borrowings in the medium to long-term. This is because of the 20 years of structural reforms involving industry and foreign exchange liberalization; tax and debt management; and the financial sector, which helped strengthen the regulatory environment and the economy’s capacity to absorb shocks,” Diokno said.
“Along with sound economic management, reforms involving industry and foreign exchange liberalization, tax and debt management, and the financial sector have helped strengthen the regulatory environment and the economy’s capacity to absorb shocks,” he added.
Diokno said 83.6 percent of the country’s external debt as of March this year was medium to long term (MLT), which means that foreign exchange requirements for debt payments are spread out and more manageable. Meanwhile, 57.8 percent of MLT borrowings have fixed interest rates “which minimizes risks from possible interest rate increases.”
“Our debt composition is more or less balanced between public sector at 55.4 percent; and private sector, the remaining 44.6 percent,” Diokno said.
Diokno also maintained that the country’s external debt ratio remains one of the lowest among Asian countries.
“In fact, credit rating agencies affirmed their confidence in the Philippine economy. As you know, 39 countries have been downgraded, while 101 countries were rated with negative outlook revisions as of end-June 2020. This is a vote of confidence for the country, enabling the Philippines to access funding at favorable rates, even during this challenging time,” he said.