Government mulls pretermination of debts to save on interest

The government is assessing its debts and contractual obligations to determine those that could be pre-terminated using future savings on interest expense and additional revenues.

The National Government is indebted by P3.86 trillion as of April, of which P1.803 trillion or 47 percent is owed to foreign creditors and P2.064 trillion or 53 percent to domestic creditors.

Finance Secretary Margarito B. Teves said the expected revenues and savings from the successful implementation of the expanded value-added tax law and other revenue-generating measures will go into interest payments and debt servicing.

"The savings will be used to pay off debts. The priority is to try to reduce outstanding debt even further and we are already in the process of reviewing which outstanding loans can be retired ahead of maturity," said Teves.

Moreover, the government is also looking into the individual contractual obligations to determine if there are pre-termination clauses.

"We want to be careful about this. The government is also hoping to save from lower interest cost and reduce interest rate on Philippine debt papers to bring down debt servicing," Teves said.

To date, the government has accumulated P12 billion savings on its interests payments this year. Last year, it was able to save P40.8 billion on interest expense.

As of August this year, interest payments amounted to P203.5 billion, or P6.4 billion lower than the program amount of P210 billion for the period. The full-year estimate is P302 billion.

These positive developments however, have yet to result in easing government’s budget woes.

Budget Secretary Romulo L. Neri noted that while savings from lower debt payments should free up more resources to bankroll government’s priority projects, government cannot use savings from interest payments because these are non-budgetary savings and government can only spend against appropriations.

Previously, sources said DBM will surrender savings on lower interest costs — estimated to amount to as much as P30 billion by the end of the year, to help reduce the budget deficit to P160 billion or less.

The DBM is hoping the prevailing low interest rate regime versus program would contribute more to the downward adjustment in the deficit. According to the DOF, they expect savings because interest rates were lower than projected, which is at seven to eight percent but actual rates fell to 6.3 percent.

Neri said the government is spending almost P90 billion more in interest payments on its dollar-denominated debt papers because of credit rating downgrades, which made Philippine debt papers, also called ROP or Republic of the Philippines bonds more expensive.

The country’s sovereign ratings presently have "negative" outlook from Moody’s, Standard & Poor’s and Fitch Ratings.