Government debt in January expanded by 5 percent from the year-earlier level as the weaker peso made it more expensive to repay foreign currency denominated debt.
The Bureau of Treasury (BTr) said that the government’s outstanding debt stood at P5.594 trillion as of end-January, up P259.27 billion from the P5.34 trillion level the previous year.
Of the total debt, P1.97 trillion or 35 percent was sourced from foreign creditors while P3.62 trillion or 65.0 percent was sourced from domestic creditors.
It said borrowings from the domestic market grew 6.1 percent year-on-year to P3.62 trillion.
The BTr said that the latest domestic debt figure was “due to a net redemption amounting to P114 billion, which was slightly tempered by the P1 billion increase in peso value of debt due to the appreciation of the US dollar, which affected the value of multicurrency retail treasury bonds.”
“Peso depreciation was behind it. This is why BTr should continue cutting the foreign exchange debt and replace it with peso-denominated debt,” said Jun Neri, Bank of the Philippine Islands chief economist.
The peso sharply weakened against the dollar in January this year, hitting a low of P45.37 per dollar as of January 26.
Neri explained that peso-denominated debt is inexpensive historically
compared to foreign exchange debt because it lessens the country’s exposure to currency risk.
The economist explained that the currency risk for borrowers is the potential rise in the debt burden due to exchange rate fluctuation.
“Even if the interest rate is slightly lower, if we borrow in US dollars versus domestic borrowing, we can end up paying more because of the foreign exchange volatility,” he said.