Moody’s Investors Service expects governments and corporations that have accumulated large debts this year for pandemic programs to suffer the negative consequence of expensive payments starting next year.
The scenario threatens to further deteriorate the fiscal house of Asian economies, especially Indonesia, Sri Lanka and the Philippines where foreign debts accounted for over a third of total liabilities.
Asian governments where budgets have typically been tight binged on debt this year to ensure cash continues flowing while they control the spread of the pandemic. For now, a weak dollar is cutting the costs of these obligations and making borrowing more affordable. However, the debt watcher warned that the party may soon be over when the calendar shifts. Once annual interest payments due early next year start falling, a strong currency may no longer help governments that turned to debt this year.
In the case of the Philippines, the peso has been considered among the best performing currencies this year largely due to low imports resulting in low demand for dollars. A sudden rebound on shipments could weaken the peso and increase debt costs.
The Duterte administration has repeatedly countered calls for bigger stimulus with the need to keep its fiscal house in order. However, our government has entered into numerous multilateral and bilateral loans to the tune of $9.9 billion as of October 2 to fund its pandemic response. Bureau of Treasury data showed overall gross borrowings hitting P2.56 trillion from January to September.
Governments that have been willing to turn to huge debts should also have considered the short, medium and long term consequences and obligations. The government officials and agencies responsible for managing that debt will need to craft the appropriate response to ensure that the Filipino people reap the benefits of whatever loans our government enters into but minimizes the fallout that could come from the obligations that will have to be met.*