Gross borrowings up 36% to PHP 1.26T

The National Government’s (NG) gross borrowings hit PHP 1.26 trillion as of end-May amid an increase in domestic debt, data from the Bureau of the Treasury (BTr) showed.    

In the first five months of the year, gross borrowings climbed by 35.9% from PHP 924.429 billion in the same period a year ago.

Gross domestic debt rose by 41.5% to PHP 912.577 billion in the January-to-May period, from PHP 644.815 billion a year ago. This accounted for almost three-fourths or 72.6% of total gross borrowings in the first five months. 

Broken down, domestic debt was composed of PHP 561.15 billion in fixed-rate Treasury bonds, PHP 283.76 billion in retail Treasury bonds, and PHP 67.66 billion in Treasury bills. 

Meanwhile, external debt grew by 23% to PHP 343.874 billion as of end-May from PHP 279.614 billion a year ago.

Global bonds made up PHP 163.607 billion of the foreign borrowings, followed by program loans (PHP 142.395 billion) and new project loans (PHP 37.872 billion.)

In May alone, gross borrowings reached PHP 146.783 billion versus the net redemption of PHP 258.97 billion in the same month in 2022.

Domestic debt accounted for the bulk or 89.8% of total gross borrowings during the month.

Gross domestic borrowings reached PHP 131.792 billion in May, from a net redemption of PHP 270.769 billion in the same month a year ago.

Broken down, this consisted of PHP 100 billion in fixed-rate Treasury bonds and PHP 31.792 billion in Treasury bills.

Meanwhile, external gross borrowings went up by 27.3% to PHP 14.991 billion from PHP 11.709 billion in the previous year.

This consisted of PHP 9.098 billion in program loans and PHP 5.893 billion in new project loans.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that elevated inflation drove up government expenditures, which led to higher borrowings.

Headline inflation eased to 6.1% in May. However, this was still the 14^th straight month inflation breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target.

It was also still above the revised 5.4% full-year forecast by the central bank.

“Higher interest rates and bigger budget requirements pushed up overall gross borrowings for the year,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

From May 2022 to March 2023, the BSP raised rates by 425 basis points, bringing the policy rate to 6.25%.

“Higher debt servicing cost of the National Government, particularly higher interest rates and weaker peso exchange rate since 2022, largely led to higher National Government borrowings,” Mr. Ricafort added.

The National Government has set its borrowing program at P2.207 trillion this year, consisting of PHP 1.654 trillion from domestic sources and PHP 553.5 billion from foreign creditors.

Alternative sources
Meanwhile, analysts said the Philippines should start looking into alternative sources of financing instead of relying on government borrowings.

“The fiscal space has narrowed because of the heavy borrowing incurred during the pandemic. At the same time, new spending for universal healthcare, food and nutrition, climate change resiliency, clean energy, etc. will require new sources of funding,” Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said via Facebook Messenger chat.

“The lesson we have learned from previous crises is that we cannot be dependent on borrowing,” he added.

As of end-May, the National Government outstanding debt hit a record P14.1 trillion.

The country’s debt-to-gross domestic product (GDP) ratio stood at 61% as of the end of March, slightly above the 60% threshold considered manageable by multilateral lenders for developing economies.

Mr. Sta. Ana said new taxes could reduce the government’s reliance on borrowings.

“New sources of funding have to be principally generated from domestic sources — that is, taxation. There are good taxes that can be introduced, taxes that will not hurt the economy and the people’s well-being,” he said, citing “sin” taxes and consumption taxes.

Data from a recent report by the United Nations (UN) showed that global public debt hit a record $92 trillion in 2022. Of this, developing countries owed 30% of the total public debt.

The UN also noted that public debt has risen faster in developing countries than developed ones.

“The rise of debt in the developing world has mainly been due to growing development financing needs — exacerbated by the COVID-19 pandemic, the cost-of-living crisis, and climate change — and by limited alternative sources of financing,” it added.

Public debt in developing countries has also increased to 60% of GDP in 2021 from 35% of GDP in 2010.

“Debt restructuring for the Philippines in terms of rescheduling, reduction or cancellation, interest rate cuts, and the like will only take place and be meaningful in magnitude with a more democratic international financial system starting with the International Monetary Fund (IMF) and World Bank. But this is only dealing with one symptom of the problem of underdevelopment and the roots of over-indebtedness will only be resolved with a robust domestic economy,” Sonny A. Africa, executive director of think tank Ibon Foundation, said in a Viber message.

Mr. Africa said when resources are freed up from debt servicing, the funds should go to agricultural modernization, industrialization, and sustainable development.

The UN also said there is a need for more affordable, long-term financing, such as concessional finance. Expanding contingency finance will be crucial “so that countries are not forced into debt as a last resort,” it added.

“Ensuring liquidity through contingency finance for countries facing external shocks is a straightforward measure that’s long overdue. If the International Monetary Fund and World Bank are more democratic and developmental, it will be much easier to pursue debt standstills and workouts,” Mr. Africa said.

“Much more development finance should be given to less developed countries such as the Philippines, including financing for industrial development which is so essential for economic progress,” he added.

In an e-mail, Ateneo de Manila University economics professor Leonardo A. Lanzona in an e-mail said the problem with international finance architecture is its emphasis on macroeconomic fundamentals “which entail fiscal discipline and other forms of restrictions that can limit the country’s choice of policies.”

“Hence, the focus of economic managers has been in creating the illusion of strong fundamentals which may divert the government from investing in long-term projects for social protection and human capital. This system of rewarding countries with good fundamentals can lead to macroeconomic conditions that may not necessarily enhance social welfare,” he added.

Mr. Lanzona also said that this structure forces countries like the Philippines to “concentrate on short-term programs that do not necessarily improve the living conditions of the majority.” — Luisa Maria Jacinta C. Jocson, Reporter