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BSP Approved $5.6B in Foreign Loans to Fund Pandemic Fight

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Key Points

  • Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the policy-making Monetary Board had given the green light to a total of $5.6 billion worth of concessional credit from overseas as of the end of July 2020.
  • These borrowings are a $2.6-billion loan from Asian Development Bank, a $1.5-billion loan from World Bank, a $750-million loan from the Asian Infrastructure and Investment Bank, a $477-million loan from Japan International Cooperation Agency, and a $295-million loan from Agence Francaise de Developpement.
  • Furthermore, the central bank chief noted that the Philippines’ external debt and external debt-to-gross domestic product ratio remain one of the lowest in Asia and its credit rating peers.
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Manila • A large batch of foreign loans was approved by the central bank to help fund the government’s fight against the coronavirus pandemic, but the regulator was quick to point out that the debt profile of the country remains favorable despite the borrowing spree.

In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the policy-making Monetary Board had given the green light to a total of $5.6 billion worth of concessional credit from overseas as of the end of July 2020.

These borrowings are a $2.6-billion loan from Asian Development Bank, a $1.5-billion loan from World Bank, a $750-million loan from the Asian Infrastructure and Investment Bank, a $477-million loan from Japan International Cooperation Agency, and a $295-million loan from Agence Francaise de Developpement.

“We would like to assure the public that the impact of these borrowings on key metrics is manageable and sustai­nable,” he said, explaining that the low-interest rates and long tenors extended by the creditors are favorable.

Furthermore, the central bank chief noted that the Philippines’ external debt and external debt-to-gross domestic product ratio remain one of the lowest in Asia and its credit rating peers.

“This fact is recognized by international credit rating agencies [like] Moody’s, Fitch and Standard and Poor’s,” he said. “From January to June 2020 these rating agencies downgraded the ratings of 39 sovereigns and revised to negative outlook 101 sovereigns.” “By contrast, they affirmed their investment-grade rating for the Philippines,” Diokno added. “That’s a strong vote of confidence in the country’s ability to service its debt moving forward.” The BSP governor also described the country’s foreign debt profile as “robust,” noting that 83.6 percent of borrowings are medium- to long-term while being balanced between the public sector with 55.4 percent of total borrowings, and the private sector with 44.6 percent.

Meanwhile, 57.8 percent of borrowings in the medium to long term have fixed interest rates, minimizing risks from possible interest rate hikes.

BSP data showed that the country’s external debt stood at $81.4 billion by the end of March 2020, down $2.2 billion from December 2019’s $83.6 billion total.

At the end of the first quarter of 2020, the external debt figure represented 21.4 percent of the country’s gross domestic product—substantially below the 57.3 percent reported 15 years earlier.

Diokno earlier reiterated that the Philippine economy conti­nues to have the capability to pay off its loans as they come due, despite the fresh round of borro­wings done in recent months, in view of the country’s improved external debt manageability “achieved through 20 years of critical structural reforms.” “Along with sound economic management, reforms involving industry and foreign exchange liberalization, tax and debt management, and the financial sector have helped strengthen the regulatory environment and the economy’s capacity to absorb shocks,” he added.

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