Finance Secretary Carlos Dominguez III has disapproved the proposal to temporarily suspend the country’s debt payments to boost COVID-19 response funds.
In a statement, Dominguez said the government had not and would not consider a moratorium on the national government’s debt obligations despite the 2019 coronavirus (COVID-19) pandemic.
"Debt moratorium has not crossed our mind. It was never entertained or will ever be a part of our crisis response measures," Dominguez said.
Senator Imee Marcos earlier proposed that a moratorium on Philippines’ debt payments to to allocate more funds for the social amelioration program amid the COVID-19 crisis.
“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%. By 1991, this ratio had gone down to 65.2%,” he added.
In 2019, the Philippines’ total debt-to-GDP ratio or the amount of the country’s financial obligations relative to the size of the economy stood at 44.2%.
The Finance department attributed the lower debt-to-GDP ratio to “decades of sound fiscal stewardship across administrations, and President Duterte’s resolve to remain conservative with our finances and in our approach to debt management, for the benefit of the present and future generations of Filipinos.”
Actual debt-to-GDP ratio, which excludes guarantees, was down to 41.5% in 2019.
Dominguez said the country could not wish away its obligations "when the reliability of our word secures our economy's capacity to bounce back once the COVID-19 pandemic is over.”
“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,” Dominguez said.
For this reason, the Finance chief said 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.
Marcos said that the P451 billion budget for the interest payments on the country’s debts under the General Appropriations Act of 2020 could be used to augment the cash aid to Filipino families who are bearing the brunt of the enhanced community quarantine.
“The off-budget payments of P582 billion to amortize the principal amount of the country's debts could also be "reserved for cash aid," according to the senator.
Dominguez, however, said that Marcos’s suggestion to use interest payments in the national budget to be used for COVID-19 response, included debt servicing for loans from domestic creditors, including pensioners and small depositors.
“Around two-thirds of our debts are from local creditors,” Dominguez said.
“Senior citizen pensioners, for instance, rely on their investments in government debt instruments for their income,” he added.
The Cabinet official emphasized that the government has built a 34-year track record, which began during 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.” Dominguez said.
“In the developing world, we are among the few countries able to borrow from multilateral institutions at largely concessional rates,” he said.
Dominguez earlier said the country had been working with multilateral institutions such as the Asian Development Bank (ADB), the World Bank, and the Asian Infrastructure Investment Bank (AIIB) for additional financing for its 4-pillar strategy against COVID-19.
He added that the country’s strong fundamentals and commitment to fiscal and economic reforms has given it credibility with 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 Duterte’s watch, we continue to borrow wisely, we tax more equitably and efficiently, and we continue to spend such resources judiciously. Confidence in the Philippines during a time when investors are scouring investment destinations for the strongest prospects is an exceptional advantage that we cannot squander,” he added.
“The Philippines will honor its commitments. We will face the challenges of defeating COVID-19, and fulfill our obligations. 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 in a time of global uncertainty,” Dominguez said.