Connect with us

Hi, what are you looking for?

Economy

Weak peso to further bloat PHL debt stock

THE PHILIPPINES may find it more costly to service its foreign debts, as the peso slumped to its weakest value against the US dollar in over 16 years, economists said.

“There’s no question that a weaker peso would make it more costly to service the country’s foreign debts,” Miguel Chanco, Pantheon Macroeconomics chief emerging Asia economist, said in an e-mail.

The local unit closed at P54.985 on Friday, its weakest against the US dollar since the P55.08 close on Oct. 27, 2005.

“Weaker peso exchange rate also increases the peso equivalent of the government’s foreign debts/loans, thereby could bloat the debt stock,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note.

The National Government debt currently stands at P12.76 trillion as of end-April, of which 30% or P3.83 trillion are owed to foreign creditors.

As of end-April, the external debt inched up by 0.4% from the previous month, due to the P28.56-billion net availment of external loans and the effect of the peso depreciation against the US dollar amounting to P31.50 billion. However, this was tempered by the P43.86-billion adjustments in third currencies.

Some of these foreign loans were long term and had low interest rates, enabling the government to pay them over extended periods of time.

“Fortunately, about 75% of our national debt is dominated in [peso], while 25% is foreign-currency dominated,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail. “This ratio of domestic and foreign debt was by design… and I think that this will do us good in the longer run.”   

From January to April, the National Government’s total debt service bill stood at P356.625 billion, falling by nearly 40% from a year ago.

Amortization slumped by 61% to P170 billion, of which payments for domestic and foreign obligations stood at P153 billion and P16.98 billion, respectively.

Interest payments for the four-month period went up by 24.69% to P186.632 billion.

Mr. Chanco said the main question is which sectors may suffer as a consequence of bigger foreign debt payments by the government.

“Clearly, the government will have to either cut discretionary spending, raise new taxes — or potentially both — to find funds it didn’t think it would need for interest payments,” he said.

Another immediate impact of the depreciated peso is that it will make imports more expensive, Ateneo de Manila Economics Professor Leonardo A. Lanzona said in a Viber message.

“This can affect our production, making it difficult to pay our debts. The good side, however, is that the remittances will have a higher value here and exports will be cheaper, both of which can have a positive effect on the economy,” he said.

Mr. Ricafort said the weaker peso may benefit overseas Filipino workers (OFWs) and their families, and business process outsourcing companies.

“Any advantage may be offset by higher prices/inflation already at a new 3.5-year high of 5.4% in May 2022 and could still go up towards 6% in view of higher minimum wages of at least +6% in NCR (National Capital Region) and minimum transport fares effective June 2022 and the higher prices of other affected goods and services,” he said.

The Bangko Sentral ng Pilipinas last week raised its average inflation forecast for this year to 5%, from 4.6% previously, exceeding its 2%-4% target band. — T.J.Tomas 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Economy

PayMaya, the country’s largest processor of merchant payments, has relaunched its enterprise brand as Maya Business. The new Maya Business seamlessly integrates omnichannel payment...

Economy

SM Investments Corp. sees a brighter consumer outlook, fueled by sustained confidence in retailing Increased shopping activity, which was unleashed by the loosening of...

Economy

By Chelsey Keith P. Ignacio Filinvest Land, Inc. (FLI) registered an increase in its revenues as well as housing and condominium sales in the...

Economy

A master-planned community anchored on wellness, sustainability, and business growth awaits those wanting to enjoy the ‘island life’ in Megaworld’s Paragua Coastown By Jules...

Economy

By Chelsey Keith P. Ignacio Education can open the doors to abundant opportunities, from achieving one’s dream, helping the family, or even contributing to...

Economy

Sustainability has transcended trends and has become somewhat of an art form in itself. In business, it has now been refined to qualify as...

You May Also Like

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Economy

Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...

Investing

Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...

Investing

Instagram still holds the top spot for social media in terms of building brand reputation and expanding business potential. Every day, more and more...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.