The Philippines will honor its debt obligations despite the spread of the coronavirus disease because it is a “responsible borrower””•and doing so will ensure its capacity to recover once the pandemic is over, Finance Secretary Carlos Dominguez III said Tuesday.
Dominguez says the Philippines has not and will not consider a moratorium on the national government’s debt payments.
“Debt moratorium has not crossed our mind. It was never entertained or will ever be a part of our crisis response measures.”
Dominguez said this was his reaction to what he called “narrow-sighted” suggestions that the Philippines request a moratorium on its debt payments and use its interest payments to partly finance the Philippines’ COVID-19 response.
“The strongest pillar of the Philippines’ standing in the global economic community is that the country honors its financial obligations and, for that reason, investor confidence in our economy is broad and deep,” Dominguez said.
“Integral to our country’s remarkable turnaround story is how credible and responsible a borrower it has become since 1986. Back then, our total debt-to-GDP [gross domestic product] ratio hit as high as 78.3 percent. By 1991, this ratio had gone down to 65.2 percent.”
The Philippines’ debt-to-GDP ratio stood at 44.2 percent in 2019, the product of decades of sound fiscal stewardship across administrations.
The actual debt-to-GDP ratio, which excludes guarantees, was down to 41.5 percent in 2019.
Dominguez says the Philippines “cannot wish away our obligations at this critical time when the reliability of our word secures our economy’s capacity to bounce back once the COVID-19 pandemic is over.”
He says more favorable options are available for financing the government’s emergency and recovery programs. Losing the Philippines’ credibility among international lenders would mean losing the ability to gain access to low-interest, concessional financing for its recovery and stimulus programs.
“For this reason, a moratorium was never considered or entertained as a tool to address COVID-19. The country’s fundamentals are strong, and the willingness of investors and creditors to partner with the Philippines means we can negotiate new loans from a position of strength,” Dominguez said.
In response to Senator Imee Marcos’s suggestion that the Philippines use interest payments in the national budget for COVID-19 response programs, Dominguez said “the figure Marcos cites includes debt servicing for loans from domestic creditors, including pensioners and small depositors. Around two-thirds of our debts are from local creditors.” Senior citizen pensioners, for instance, rely on their investments in government debt instruments for their income.”
Dominguez says the Philippines has built a 34-year track record, beginning with the Cory Aquino administration, of honoring its debt obligations, and that has allowed it to remain one of the most attractive investment destinations and one of the world’s favorite bond issuers.
He says rather than take an option that will tank the country’s long-term investment and borrowing prospects, “we should burnish our reputation as a borrower and a business partner with integrity and palabra de honor because this ultimately benefits the Filipino people.”
In the developing world, Dominguez says, the Philippines is among the few countries able to borrow from multilateral institutions at largely concessional rates.
He earlier said the Philippines had been working with multilateral institutions such as the Asian Development Bank, the World Bank, and the Beijing-based Asian Infrastructure Investment Bank for additional financing for its four-pillar strategy against COVID-19. He said the Philippines’ strong fundamentals and commitment to fiscal and economic reforms had given it credibility among domestic and international lenders.
“Very few economies of our size can ask for better terms,” Dominguez said.
“The global community is happy to lend to us because we do not renege on our commitments.”
Under President Rodrigo Duterte’s watch, Dominguez says, the government continues to borrow wisely, it taxes more equitably and efficiently and it continues to spend its resources judiciously. Confidence in the Philippines at a time when investors are scouring investment destinations for the strongest prospects is an exceptional advantage that cannot be squandered.
“The Philippines will honor its commitments. We will face the challenges of defeating COVID-19, and fulfill our obligations,” Dominguez said.
“The world can count on this country’s recovery and on the continued strength of its word. There is no asset more valuable than dependability at a time of global uncertainty.”