Government to trim amount of program loans next year

MANILA, Philippines - The Aquino administration will reduce the amount of program loans next year as part of its debt management strategy, according to the Department of Finance (DOF).

Program loans will decrease by 40 percent to $759 million in 2013 from the programmed $1.27 billion this year, the DOF said.

Similarly, project loans will go down by six percent to $604 million next year from this year’s program of $643 million.

The huge reduction in program loans and the corresponding shift to project loans are part of the government’s debt management strategy, the Finance department said.

The government has also been reducing the foreign component of its debt and borrowing more from the local market instead to siphon off excess liquidity in the domestic system.

Program and project loans are tapped from multilateral lenders for the government’s various development projects. Project loans are intended for specific projects of state agencies while program loans are tapped by the national government on an unrestricted basis.

To compensate for the reduction in program and project loans, the government would be increasing its commercial borrowings through the issuance of bonds, the national government’s 2013 external financing program showed.

Data showed that bonds and other inflows would increase to $3 billion in 2013 from $2.25 billion in 2012 or an increase of 33 percent.

However, the Senate Economic Planning Office, in an August report on the government’s macroeconomic assumptions warned that global interest rates are volatile on the back of the crises in Europe and in the United States.

“It should be noted however, that with tepid US growth and lurking Eurozone uncertainties, the government’s issuance of bonds in the international capital markets is still subject to much interest rate volatilities,” the SEPO said in its report.

SEPO said the government’s move to implement debt swaps is an effective way to create fiscal space in liability management.

At the same time, the economic planning office said that the real solution in fixing the country’s fiscal position is to raise more revenues to fund expenditures.

Ultimately though, as public debt is largely determined by the deficits in the budget, the government must step up its efforts to close the gap between its revenues and expenditures. This entails addressing the inherent weaknesses of the tax system, further improvements in tax administration, prudent expenditure management and improved governance.

The government has programmed a budget deficit of P279 billion this year or 2.6 percent of gross domestic product (GDP) and P241 billion or 2 percent of GDP in 2013.

It has programmed to borrow P757.7 billion next year or P567.9 billion from domestic sources and the equivalent of P189.8 billion from foreign lenders.