P86B more in foreign debt before Aquino steps down

By Jerry Maglunog

The government has borrowed $2 billion (P86 billion) more from the international capital market through 25-year dollar-denominated bonds, further raising the already record-high foreign debt under the Aquino administration.

The move, which was not given much publicity, was criticized by former Budget Secretary Benjamin Diokno, who said that, at this time, the government should not be borrowing from overseas sources.

He acknowledged, however, that the low interest rates, as a result of the investment grade that the country obtained from credit-rating agencies, provided an incentive for foreign commercial borrowings

“We have enough money internally to finance all our requirements and we have enough money to pay for our debt. It is not advisable to borrow money abroad,” said Diokno, now an economics professor at the University of the Philippines.

Despite the improving economy, the country’s foreign debt has grown to $75.6 billion (P3.63 trillion or more than half of the total P5.954 trillion total national debt).

According to the records of the Bureau of the Treasury (BTr), the government under Mr. Aquino incurred P1.2 trillion in additional debts until the end of last year.

The government’s outstanding debt reached P5.954 trillion at the end of 2015, which was 3.8 percent or P219.30 billion more than the P5.73 trillion debt by the end of 2014, BTr data also showed.

When Mr. Aquino took over the reins of government in 2010, the government’s outstanding debt was P4.7 trillion, according to the BTr.

With full-year gross domestic product (GDP) growth reaching 5.8 percent, debt in proportion to GDP kept a gradual downward trajectory to 44.8 percent in 2015, from 45.4 percent last year, the BTr said.

It added that the improvement in the debt-toGDP ratio, a usual measure of sustainability, could be attributed to the sustained accelerated pace of economic growth, in tandem with disciplined fiscal spending that moderated borrowing requirements for that year.

Expressing his opposition to the foreign borrowing, Diokno said the country current gross international reserves (GIR) were “hefty and healthy.”

“We are assured of a steady inflow of $25-billion to $26-billion overseas remittances yearly. This is on top of the growing inflows from the expanding business process outsourcing (BPO) industry,” he said.

Diokno also cited the “huge underspending” of the budget under Mr. Aquino, saying this administration “couldn’t even implement programs and projects Congress has authorized it to implement.”

Based on Diokno’s estimates, the Aquino administration, from 2011 until last year, “underspent by as much as P600 billion.”

Former National Treasurer Leonor Magtolis-Briones said 13 percent of the budget for 2016—or as much as P812 billion—is allocated for debt servicing. This is how much money would be taken away from key infrastructure projects, airport improvements and new bridges.

Of the total, P419.3 billion is allocated for principal payments and P392.8 billion for interest payments. Debts that are listed to be paid through this amount belong to the list obtained from the National Treasury.

“The Philippines is fully committed to a proactive liability-management strategy to keep our debt structure resilient. I am optimistic we can further trim down our debt-to-GDP ratio, which from 52.4 percent in 2010 narrowed down to 44.8 percent in 2015, a 7.6 percentage point (ppt) difference,” Finance Secretary Cesar V. Purisima said in a statement.

Purisima said fiscal reforms, alongside the efficient use of government funds, resulted in the lesser need for the state to borrow funds to finance its projects and programs.

Of the total debts last year, domestic debts amounted to P3.88 trillion, 1.7 percent higher than the previous year’s but 0.3 percent lower than the end-November 2015 level.

The month-on-month drop in domestic debt was attributed to net redemption of government securities amounting to P11.35 billion, which countered the P0.02-billion rise in peso value of foreign currency domestic liabilities due to peso depreciation.

External liabilities rose 8.1 percent year-on-year and 0.6 percent month-onmonth to P2.07 trillion. This was traced to “net availments” worth P3.81 billion and peso depreciation as the US dollar and third currency-denominated debt went up P2.18 billion and P7.26 billion in local currency valuation, respectively.

Purisima said, “a challenging external environment calls for consistent discipline in making sure productive debt works in our favor.”

Purisima added that the freshly issued bond, the first sovereign global bond and longest dated issuance from Asia this year, has a coupon rate of 3.7 percent, which was the lowest interest rate the government committed to pay.

He said $1.5 billion (P72 billion) bought back 16 series of bonds earlier issued, maturing from 2016 to 2037.

The remaining amount or $500 million (P24 billion) will be used to plug the budget gap. The government received $5.6 billion (P268.8 billion) worth of offers for the bonds but accepted only $1.5 billion (P72 billion).

“The Republic’s stellar track record in executing liability management transactions underpins the Aquino administration’s firm commitment to pro-active risk management,” Purisima said.

“By leveraging on these opportunities to reduce high-coupon debt and to extend the maturity of our debt portfolio, the country achieves valuable savings that we can use to target broad-based and inclusive growth and development,” he added.