FOREIGN borrowings greenlit by the Monetary Board plunged by over 70 percent in the third quarter, according to the Bangko Sentral ng Pilipinas (BSP).
On Friday, the BSP said the Monetary Board approved $1.10 billion worth of proposed public-sector foreign borrowings in the third quarter of the year.
This represents a 71.13-percent decrease from the $3.81 billion in approved foreign debt in the same period a year ago.
The Central Bank said the loans, which have medium- to long-term maturities, were intended for social protection projects.
According to Michael L. Ricafort, chief economist at Rizal Commercial Banking Corporation, the drop in foreign borrowings shows the government’s strategy to rely less on external financing.
This year, the government’s financing mix is set at 81:19, in favor of domestic sources. This means P2.106 trillion will be borrowed from the local debt market, while P494 billion will come from foreign financiers.
Moreover, Ricafort said the lower external borrowings also reflect cautiousness amid heightened foreign-exchange risks.
Ricafort told the BusinessMirror that it was part of the ‘learning from the lessons from past crisis periods, as foreign loans could lead to foreign-exchange losses for those borrowers that are not hedged.’
The peso traded near nine-month highs against the US dollar and close to the record P59 level that was sustained for more than three years already, Ricafort added.
‘Thus, lower amount of approved foreign loans reflected that cautiousness vs. potential forex losses that entail US dollar and other foreign loans,’ Ricafort said.
Ricafort also noted that since the start of the Russia-Ukraine war in February 2022, the US dollar has appreciated by around 15 percent, making foreign borrowings more expensive not only in terms of interest costs but also potential forex losses.
From January to September this year, public-sector foreign borrowings reached $12.28 billion.
Under Section 20, Article VII of the 1987 Constitution of the Republic of the Philippines and as mandated under Letter of Instructions No. 158 dated January 21, 1974, the BSP is tasked to approve the government’s foreign loans.
‘Under the law, all foreign borrowing proposals by the national government, government agencies, and government financial institutions, as well as loans to be guaranteed by the national government require prior approval of the BSP’s Monetary Board. This is in line with the BSP’s tasks of ensuring that the country’s foreign debt remains manageable,’ the BSP said.
The government’s outstanding debt reached P17.468 trillion as of end-August, up by 12.3 percent from P15.550 trillion during the same period a year ago.
Of the total debt stock, 69.19 percent was borrowed locally, while 30.81 percent came from foreign sources.
The Bureau of the Treasury said this is a ‘generally more favorable debt position,’ since domestic debts are less vulnerable to shifts in foreign-exchange movements.
‘Domestic borrowing is largely owed to Filipinos themselves, providing a safe and secure investment vehicle for wealth growth while also ensuring that the money circulates back into the local economy,’ the Treasury added.