Gov’t wants to reduce ratio of foreign debt to total debt

MANILA, Philippines - The government wants to further trim the share of foreign debt to the country’s total debt given strong liquidity in the domestic banking sector.

National Treasurer Rosalia De Leon said the Philippines has been keeping the share of external debt small compared to domestic borrowings and it will continue to do so as part of the liability management program of the Aquino administration.

 â€œWe intend to further reduce the ratio of foreign debt to total debt from the current 35 percent,” De Leon said.

Last year, total government debt reached P5.68 trillion, up 4.5 percent from 2012 figure. The bulk or 65 percent of the total represented local borrowings at P3.73 billion while foreign borrowings accounts for the remaining 35 percent or P1.95 trillion.

External debt is the amount of money owed by the Philippines to foreign creditors, comprising multilateral development institutions led by the Asian Development Bank, World Bank and the Japan International Cooperation Agency. 

This consists mostly of medium to long-term loans used to finance the economic activities and reforms of the government.

De Leon said the decline in the debt ratio is an indicator of the country’s improving capability to service its obligations to foreign creditors and should thus merit further upgrade on its credit rating.

“We  expect an upgrade of our credit rating given the government’s strong fiscal position, robust economy and improving tax collections,”  De Leon said.

The Philippines is currently rated investment grade by all three  of of the world’s leading rating agencies – Moodys, Fitch and Standard & Poor’s.

The local economy expanded by 7.2 percent last year, the fastest growth since 2010.  It remains the fastest-growing economy in Asia after China.

Last year, the ratio of debt to gross domestic product ratio fell to 49.21 percent from 2012’s 51.5 percent.  This was the first time that the government recorded a debt-to-GDP ratio below 50 percent, further boosting the country’s fiscal position.

The government likewise managed to keep the fiscal deficit from 3.5 percent of GDP in 2010 to 1.4 percent in 2013.

For this year, government borrowings are seen to reach P730 billion, 2.1 percent higher than the original plan of P715.04 billion.

De Leon said the Aquino administration plans to borrow more from overseas investors  to take advantage of cheap loans to fund massive reconstruction and rehabilitation  efforts for the storm-ravaged Eastern Visayas.