The Finance ministry has applied for additional loans as part of its revamped borrowing facility to support economic growth.
This week, Finance Minister Peggy Serame requested permission from parliament to approve $100 million (P1.3 billion) loan from the Organisation of the Petroleum Exporting Countries Fund for International Development (OPEC Fund), as part of the Programmatic Economic Resilience and Green Recovery Programme announced last year.
Serame said the loan will support government’s efforts to improve fiscal efficiency and sustainability, further supporting private sector led industrial development and to advance economic and social inclusion. The Finance ministry also sought approval of $179.7 million (P2.3 billion) loan from the African Development Bank (AfDB), following another $137 million loan from the bank last year.
The latest request from the finance ministry comes at a time the country is recovering from the COVID-19 disruptions, which worsened the country’s slow economic growth, plagued by huge budget deficits that forced the government to nearly deplete the foreign reserves.
The Government Investment Account (GIA), which represents the government’s share of funds in the Pula Fund, was valued P13.9 billion in September, staging a slow recovery. The account dropped from 2019’s P18.3 billion to P2.8 billion by end of December 2020, the lowest balance on record, and finished 2021 with a P5.6 billion. While the GIA has been on upward trajectory in the past 11 months, it is half of what it uses to be at its peak. Prior to the financial crisis of 2008/9, the government investment account had a healthy balance of P30.5 billion in December 2008.
The Finance ministry says it’s implementing fiscal sustainability to improve revenue collection and contain expenditure in efforts to return to budget surpluses – using the extra cash to grow the GIA and maintain it as a fiscal buffer against future shocks. Serame has reiterated that there is urgent need to contain expenditures in order to manage the fiscal deficit, which is the main driver of the declining GIA. The government has been plagued by budget deficits since 2017, adding up to P35 billion in the past three years.
Though the government’s fiscal position appears to be improving, with the finance ministry expecting a budget surplus of P104 million for the financial year 2021/2022, it has disclosed that the budget deficit for the current 2022/2023 financial year will be as high as P6.9 billion, before narrowing down to P163 million outrun in 2023/2024 financial year. The country is expected to return to budget surplus of P355 million in 2024/2025 and P1.2 billion for 2025/2026 financial year.
As part of the fiscal sustainability measures, the Finance ministry is using a mixture of funding to smooth budget deficits without tapping into the GIA. In 2020, parliament changed the law to increase the domestic borrowing programme from P15 billion to P30 billion, and further increased the frequency of bond auctions from 4 to 12 auctions each year. From the ten bond auctions this year, the government has raised P10.1 billion, pushing government’s domestic debt to P23.4 billion, three times than the P6.8 billion in 2015/2016 financial year. As of June 2022, external loans amount to P17.4 billion, bringing total government debt to P40.9 billion. If you include other loans where the government is the guarantor, the total government debt is P47.8 billion.