Philippines’ COVID-19 war chest reaches $6.5 billion

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The Finance Department expects full disbursement of the $750 million loan from the Beijing-based Asian Infrastructure Investment Bank by June. — Reuters

To date, the Philippine government has raised over $6.508 billion in loans and grants to fund its efforts to control the coronavirus disease 2019 (COVID-19) outbreak and programs to address the economic fallout.

This comes as the Department of Finance (DoF) on June 5 signed an agreement with the Asian Infrastructure Investment Bank (AIIB) for a $750 million loan. The DoF expects the loan to be fully disbursed within the month.

“The AIIB loan program will help increase our financing needs needed to mitigate the severe negative impact of COVID-19 on our population and economy,” Finance Secretary Carlos G. Dominguez III said in a statement. published on Tuesday.

The loan is part of the AIIB’s share in co-financing the Philippines’ COVID-19 Active Response and Expenditure Support (CARES) program with the Asian Development Bank (ADB).

DoF data showed $5.758 billion had been raised from a combination of loans, global bonds and grants as of June 4. Disaggregated, $5.65 billion of budget support funding came from multilateral lenders and global bond issuance, while $108 million was in the form of grants and project loans.

About 72% or $4.05 billion of budget support funding was credited to the national treasury.

On June 4, the government signed a $400 million loan agreement with the AfDB, the proceeds of which will be used to “address key constraints that have limited the growth of domestic capital markets, particularly bond markets. ‘state and enterprise’.

The latest loan brought total AfDB lending to the Philippines to $2.1 billion so far this year, following the $1.5 billion loan for the government’s pandemic response and the 200 million dollars of additional funding for the social protection program.

On June 3, the government signed the agreement for the $500 million emergency loan for the World Bank’s COVID-19 Response Development Policy. That was separate from a $500 million loan he secured from the Washington-based multilateral lender in April.

The World Bank also provided $100 million for the COVID-19 Emergency Response Project early last month, while the AfDB provided $8 million in grants in March.

At the end of April, the government sold $2.35 billion in global bonds denominated in dollars: $1.35 billion in 25-year bonds with a coupon of 2.95% and $1 billion via bonds at 10 years at 2.457%.

DEBT LEVEL
World Bank senior economist Rong Qian said the Philippines is “one of the few” countries in the region with low public external debt.

While a debt-to-gross domestic product (GDP) ratio of 50% is considered a safe level for a borrower, Ms Qian warned that exceeding outstanding debt beyond 60% of GDP could hamper economic growth as more of the budget will be used to pay down debt.

“If you borrow above 60% of GDP, growth could suffer because you end up paying more, in terms of repayment and interest rates that would be taxed by the consumer. Fifty percent (of GDP) is always a good safe number, so in principle the government could borrow more, but subject to its own legislative limits,” she told a press briefing on Tuesday.

Amid the coronavirus crisis, the Development Budget Coordinating Committee expects the debt-to-GDP ratio to rise to 49.8% this year and 51.5% by 2021, from a record high of 39.6 % in 2019.

Meanwhile, Capital Economics said the Philippines is one of many Asian economies whose debt levels could exceed 60% of their GDP in 2020.

“There are a few places, namely the Philippines, Thailand, Vietnam and Malaysia, where the crisis is likely to push the national debt above 60% of GDP by the end of the year,” Capital Economics said in a note sent to reporters on Monday. .

“A period of austerity will be needed after the end of the crisis to bring public debt down to more comfortable levels, which will dampen recoveries.”

Capital Economics said the region bottomed out in activity in April and the continued decline in production despite the gradual lifting of lockdown measures.

“Vietnam, Taiwan and Korea are the only countries where the number of people in work has returned to pre-crisis levels. Elsewhere, the recovery broadly tracks the degree to which lockdowns are eased, which in turn relates to how well countries have managed to contain the virus,” he added.

Most parts of the country have moved to a modified general community quarantine while Metro Manila and some neighboring areas are under general community quarantine, allowing some business activities to gradually resume.

However, the country has yet to see a “flattening of the curve”. On Monday, health authorities reported 579 new cases, bringing the total to 22,474. The death toll reached 1,011 while recoveries stood at 4,637.

Capital Economics said the economic recovery is likely to be gradual.

“We do not believe that it will only be in the middle of next year that regional GDP will recover to its pre-crisis level of output and even by the end of 2022 the region’s overall GDP will still be about 3% lower than it would have been had the crisis not occurred,” the report said.

The country’s GDP fell 0.2% in the first quarter, its first contraction since 1998. Economic managers expect the economy to fall by -2% to -3.2% due to worsening fallout from the virus. — BMLaforga and Noble LWT

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