Large structural liquidity to mitigate forex risks in fulfilling 2021 funding requirements

Large structural liquidity to mitigate forex risks in fulfilling 2021 funding requirements

MANILA — Finance Secretary Carlos Dominguez III said the large structural liquidity in the country’s financial system will let the government continue preferring the domestic market as a key source of its funding requirements for 2021 to mitigate the buildup of foreign exchange risks from external borrowings.

The debt-to-GDP (gross domestic product) ratio is expected this year to settle at 57 percent, which is still within a “sustainable threshold” even with the increase of the Philippines’ gross borrowings to P3.03 trillion, Dominguez said.

The head of President Duterte’s economic team expressed confidence that the government can “easily fulfill” its funding requirements for 2021, as it scales up its COVID-19 response measures to safely reopen the economy and rolls out a comprehensive program to bounce back from the global economic shock triggered by the pandemic.

“The Duterte administration is doing its utmost to avoid the costly reversal of our hard-fought gains in 2020 and the previous years,” said Dominguez during the virtual 72nd inaugural meeting and induction of the 2021 board of governors of the Management Association of the Philippines (MAP).

“We will continue to exercise discipline and prudence in managing our fiscal affairs. This, I believe, is the key to a strong and sustainable recovery,” Dominguez added.

In 2021, the government will maintain an elevated but manageable budget deficit of 8.9 percent on the back of strong government fiscal support in restarting the economy, Dominguez said.

Owing to the large structural liquidity of the financial system, the government would be able to continue prioritizing domestic financing over external sources to reduce forex risks, he said.

Dominguez said the relaxation of the reserve requirements by the Bangko Sentral ng Pilipinas (BSP) further enhanced the system’s structural liquidity.

The government also has the option of re-accessing the BSP’s emergency lending facility, which was increased under Republic Act (RA) No. 11494 or the Bayanihan To Recover as One Act (Bayanihan 2) from P540 billion to P810 billion, he said.

Moreover, he said the Philippines’ high sovereign credit ratings will provide it ready access to external commercial borrowings and official development assistance (ODA) at low rates and tight spreads.

The latest to retain the Philippines’ high investment grade credit rating was Fitch Ratings, which maintained the Philippines’ ‘BBB’ rating with a ‘stable outlook’ despite the crisis.

Fitch Ratings also affirmed the country’s ‘BBB’ grade amid several downgrades it did last year on 33 sovereigns, including countries that previously held the same rating as the Philippines such as Mexico, Colombia and Italy.

“This affirmation (by Fitch) is recognition of the soundness of our COVID-19 response measures and our strong fundamentals going into the pandemic. By keeping our credit rating, the Philippines continues to stand out in the international financial community amid a wave of negative credit rating actions,” Dominguez said. (ARWEN PASCUA/AI/MTVN)

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