Government hikes borrowings to P2.57 trillion for this year

MANILA, Philippines — The Philippines raised its 2024 borrowing program by four percent to P2.57 trillion, which could make fiscal consolidation more challenging for the government.

The Department of Finance (DOF) said the country’s financing requirement for 2024 is now at P2.57 trillion, to be sourced from both domestic and foreign sources.

The amount is 4.47 percent higher than the original borrowing plan of P2.46 trillion for the year. If realized, this will also be 17 percent higher than the P2.19 trillion in total borrowings in 2023.

National Treasurer Sharon Almanza said the higher borrowing program was the result of the adjustment in the budget deficit during the recent Cabinet-level Development Budget Coordination Committee (DBCC).

Finance Secretary Ralph Recto said the government developed a strategic fundraising plan that would continue to adopt a 75:25 domestic-external funding split.

This means that the government intends to borrow P1.93 trillion from local lenders and source the remaining P642 billion from foreign creditors.

“Based on the new DBCC forecast, a lower GDP (gross domestic product) will result in lower revenues,” Recto told reporters.

Recto said he would meet with the Bureau of Internal Revenue and the Bureau of Customs to discuss revenue targets.

“If they hit revenue targets, then we do not need additional borrowings,” he said.

ING Bank senior economist Nicholas Mapa said higher borrowings would make fiscal consolidation more challenging given the increase in deficit and debt, especially amid a still high interest rate environment.

“Current high rate environment means interest payments should stay sizable, indicating that although government spending may be increasing, some portion is being utilized to service high borrowing costs and less is left for actual spending that could translate to economic growth,” Mapa said.

Ateneo De Manila University economist and professor Leonardo Lanzona said it may not matter much if the additional borrowings can generate further growth in the economy.

“The problem I can foresee would be in terms of the costs. Given the need for fiscal consolidation, the government may be forced to generate more loans at the risk of defaulting,” Lanzona said.

“The need to acquire more loans despite higher interest rates can cause various liquidity problems that can lead to more loans. It is still better to avoid debts especially as the debt ratio relative to GDP is already elevated,” he said.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, on the other hand, said the planned increase in borrowings could lead to more supply of government securities in the market that could result in more upticks in interest rates.

With the revised borrowing program, the government already used up 32.3 percent or about P830.39 billion as of the first quarter.

For the three-month period, domestic borrowings increased by nine percent to P713.13 billion, but this was offset by the 60-percent drop to just P117.26 billion in offshore financing.

The government has been focusing on local borrowings as part of its prudent debt management strategy to mitigate foreign exchange risks, take advantage of ample liquidity in the country’s financial system and support the development of the local debt and capital markets.