In a report, Romeo Bernardo, a former Finance undersecretary said the country’s economy displayed resilience despite external shocks, cushioned mainly by strong remittances from overseas Filipino workers (OFWs) that accounted for over a quarter of total gross national product.
According to the report, the government’s decision to repay foreign debt with funds from the local market made sense given the prevailing low domestic interest rates.
However, Bernardo said this had implications on the balance of payments (BOP), putting additional drain on the international reserves of the Bangko Sentral ng Pilipinas (BSP) at a time when the BOP was already in slight deficit.
"While there has been some deterioration in the external accounts, there is no cause for worry at present as remittance inflows remain strong and the BSP’s foreign reserves provide adequate debt cover," Bernardo said.
Bernardo added this would not appear difficult since yields on government bonds across all maturities have declined by 50 to 125 basis points, reflecting both low base rates and increased market appetite for emerging market issues, despite the recent downgrade by Standard & Poors and Fitch.
"Indeed with international interest rates at historic lows, it may be prudent for government to pre-fund its borrowing requirements for the next one and a half years," Bernardo said.
According to Bernardo, it might become difficult for the government to tap the international credit market in the periods leading up to the May elections and possibly even immediately after, while the next administration is busy stabilizing itself.
Fortunately, he noted, there have been significant improvements in the systems-driven initiatives undertaken by Bureau of Internal Revenue (BIR) Commissioner Guillermo Parayno whose tax collection efforts have started yielding results.
"However, restoring the tax effort to levels prior to the Asian crisis requires correcting the weaknesses in the tax structure through legislation, rather than imposing fiscal rules," Bernardo said.