Peso weakness could limit government financing options

MANILA, Philippines — The Marcos administration’s financing options may be limited to local lenders, as the weakening of the peso against the dollar could discourage the government from acquiring dollar-denominated loans, including from the new financing fund. $600 billion infrastructure of the Group of Seven (G7).

Experts from the country’s leading universities said yesterday that the government should think twice before borrowing abroad to fund its infrastructure projects amid a weakening peso against the dollar.

Maria Ella Oplas, professor of economics at De La Salle University, has warned that the government could struggle to repay its offshore debts if it continues to obtain new loans following the continued weakening of the peso against the dollar. .

“Outsourced debt is discouraged, especially now that the exchange rate of the peso against the dollar has lowered the value of our peso. Paying back fluctuating dollars is risky,” Oplas told The STAR.

The local currency fell to 54.985 to $1 on Friday – the weakest in 17 years – before rising to 54.78 on Monday to end an eight-day decline.

Despite the correction, the peso has depreciated by 7.4% since the start of 2022, making it the worst performing currency in Southeast Asia.

Oplas said the incoming administration of President-elect Ferdinand Marcos Jr. should focus on reducing the debt ratio to a manageable 60% of gross domestic product (GDP).

“The new administration should also be careful in racking up more debt given that we have passed the 60% threshold,” Oplas said.

National debt, measured against GDP, hit a 17-year high of 63.5% in March, surpassing the international norm of 60%.

On Sunday, US President Joe Biden announced that the G7 would mobilize $600 billion over the next five years for the completion of global infrastructure, primarily in developing economies.

The G7 is made up of developed countries like Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

The G7 funding will serve as an alternative to China’s $1 trillion Belt and Road Initiative.

Biden said the G7 international infrastructure plan would give borrowers another option they can explore to pay for projects, particularly on clean energy, health systems, gender equality and technology. information.

Leonardo Lanzona, an economics professor at Ateneo de Manila University, said the Marcos administration could consider the costs and benefits of accepting the G7’s offer for infrastructure funding.

“This will help alleviate the cash constraints we are currently experiencing. The problem, however, is that it is not a distribution but rather a loan. If we ever take advantage of this window, we still need to know if the yields are higher than interest rates,” Lazona told The STAR.

Lanzona agreed with Oplas that the depreciation of the peso will increase the cost of dollar-denominated loans, but said the viability of projects to pursue should be the primary consideration.

“Loans will be more expensive, especially dollar-denominated loans, but a weak peso is not necessarily bad. It has positive effects, which may outweigh the costs. This shouldn’t be considered a problem. The question remains as to the proper allocation of these loans to the most viable projects,” Lanzona said.

On the other hand, Oplas said the Marcos administration should stick to the plan to bring back public-private partnerships (PPPs) as a mode of financing infrastructure projects. She proposed that the government allow the private sector to increase its role in economic development over the next six years.

New Finance Secretary Benjamin Diokno told The STAR that the Marcos administration will rely on PPPs to keep infrastructure spending above 5% of GDP until 2028.

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