By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) is not imposing any limit or ceiling on all foreign borrowing for the second year in a row, citing its liberalized foreign exchange rules which considerably changed the way banks and the corporate sector source their foreign currency requirement.
“We leave it to the private sector to determine their borrowing program with full recognition of risks in the external sector,” said BSP Deputy Governor Diwa C. Guinigundo.
The BSP’s foreign borrowing cap is for both the public or government sector, and the private sector. While the central bank has – in effect – left the private sector to its own foreign borrowing plan and they could borrow how much they want, the monitoring of all government foreign borrowing remains strictly mandatory.
“We do process the external borrowing program of the government in accordance with the Foreign Borrowings Act,” explained Guinigundo. In monitoring all public sector loans, be it bond issues or project or program loans from official creditors, these have to be within the Development Budget Coordinating Council-approved National Government financing, including the domestic and foreign borrowing mix for the year.
“Our monetary opinion covers the proposed foreign borrowings’ impact on domestic liquidity, balance of payments, etc.,” said Guinigundo. “We look at the terms to ensure consistency with their purpose and market realities,” he added.
The BSP reviews the private sector’s yearly foreign borrowing plans as part of its external debt management measures. These are banks, foreign parent companies and affiliates, and they borrow offshore via the issuance of bonds or securities in the international capital markets.
It has been mandatory to submit such plans to the BSP to enable them to monitor the “magnitude and timing” of foreign financing requirements of the economy, as this would help them in their capital flows projections and its implications on output.
As for the foreign borrowing of the public sector, any plans from the government to source offshore funds have to secure a Monetary Board opinion and eventually, the central bank approval. Last year, external debt of the public sector “barely increased” or just by $40 million to $37.5 billion.
In 2018, the government adjusted its domestic-to-foreign financing mix to 74:26 from the original 80:20, and according to the BSP, the change in borrowing mix reflected “plans to tap more financing from external sources, albeit the borrowing mix is still tilted towards domestic borrowings.”
The last foreign borrowing limit that the BSP imposed was in 2016, amounting to $5 billion. The same ceiling has been implemented since 2013, for both public and private sectors. The highest foreign borrowing cap was $12 billion back in 2010.
In 2017, the BSP issued two circulars to institute reforms in foreign exchange transactions and to expand the coverage of the BSP’s records of the country’s external obligations.