Philippines will continue paying its debts despite COVID-19 outbreak — DOF

• Apr 15, 2020

MANILA, Philippines — The government might be coming up short of actual cash to bankroll a massive response to the coronavirus outbreak but it will never ask its creditors for a moratorium on debt payments.

In a statement released Tuesday, Finance Secretary Carlos Dominguez III flatly rejected what he called “narrow-sighted” suggestions to use interest payments in the national budget to augment the country’s war chest against the health crisis, arguing that such an action could dent the country’s credibility among international creditors.

Dominguez explained that the country “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.”

“Debt moratorium has not crossed our mind. It was never entertained or will ever be a part of our crisis response measures,” the finance chief said.

“More favorable options are available for financing our emergency and recovery programs. If we lose our credibility among international lenders, we will lose our ability to access low-interest, concessional financing for our recovery and stimulus programs,” he added.

The coronavirus outbreak itself, and its impact, came at a bad time for the Philippine government’s budget ambitions, which ultimately include achieving a coveted “A” rating from global debt watchers like Fitch Ratings and S&P Ratings. A higher credit rating can lower the cost of borrowing in foreign currencies for the Philippine government and private companies in the country.

’34-year track record’

On Monday, Sen. Imee Marcos said the Philippines should request a change in its debt repayment timetable and use the funds in the national budget intended for interest payments to beef up cash aid for individuals and companies affected by the pandemic.

Responding to Marcos’ advice, Dominguez said: “We have built a 34-year track record, beginning with the Cory Aquino administration, of honoring our country’s obligations. Honoring our word has allowed us to remain as one of the most attractive investment destinations and one of the world’s favorite bond issuers.”

“Rather than take an option that will tank our 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,” he added.

Higher debt-to-GDP ratio likely

Last week, Dominguez told CNBC that the Duterte administration is eyeing to raise $23 billion — or P1.1 trillion — to avert the social and economic fallout of the coronavirus.

The DOF boss said the bulk of funding, which will be raised with the central bank, will go “to support the economy” while the rest will be used to fund programs for “the most vulnerable in our communities” and assist the country’s health workers.

However, he did not explain fully how the government plans to source cash for the programs.

With the increase in borrowing, Dominguez said the government “will probably increase” its debt ratio to “slightly over 46%” of gross domestic product by yearend from 41.5% last year. Debt-to-GDP measures how big of a burden liabilities are on the economy.

Source: https://www.philstar.com/business/2020/04/14/2007352/philippines-will-continue-paying-its-debts-despite-covid-19-outbreak-dof