May 27, 2022
MANILA, Philippines —— At a time of rising yields due to high inflation plus interest rate hikes here and abroad, the Bureau of the Treasury (BTr) plans to borrow P250 billion from local creditors in June.
Next month’s domestic borrowings, contained in a May 25 memorandum to government securities eligible dealers (GSEDs) issued by National Treasurer Rosalia de Leon, was higher than this month’s P200-billion program. The bigger volume was mainly due to treasury bills and bonds auctions scheduled for the five weeks of June, while May only had four weeks.
Similar to previous months, the weekly auction of short-dated T-bills on Mondays starting May 30 (and to be issued two days later) were eyed to raise a total of P15 billion — P5 billion each in the benchmark 91-, 182-, and 364-day debt paper.
The five treasury bond auctions on Tuesdays beginning May 31 will offer P35-billion each, also for issuance two days after the auction. On May 31, the BTr will offer three-year IOUs; five-year on June 7; seven-year on June 14 and 28; as well as 10-year on June 21.
De Leon on Thursday (May 26) said the June borrowings volume had been calibrated based on the domestic financing requirement as well as past rejections, referring to partially awarded auctions this month when the BTr avoided high bid rates sought by GSEDs.
To recall, domestic lenders wanted higher yields for money they would lend to the government amid uncertainties wrought by elevated global and local inflation as well as looming aggressive interest rate hikes, especially by the US Federal Reserve. The Bangko Sentral ng Pilipinas (BSP) also last week hiked the key policy rate by 25 basis points (bps) — the first increase since November 2018 — to 2.25 percent from the previous record-low 2 percent which had kept the economy afloat amid the prolonged COVID-19 pandemic.
De Leon said the Duterte administration will no longer embark on big-ticket offshore fund-raising through global bonds or locally via the usual retail treasury bonds (RTBs). The Philippines already borrowed in overseas commercial markets through US dollar-denominated bonds last March and then yen-denominated samurai bonds in April — both with the country’s maiden environmental, social, and (corporate) governance (ESG) issuances.
De Leon will stay as treasurer of the Philippines, as requested by now Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, who will be the incoming Marcos Jr. administration’s secretary of finance.
The Department of Finance (DOF) earlier said that during the first quarter, the Philippines already raised 35 percent of its full-year P2.2-trillion gross borrowings. Three-fourths of this year’s borrowings—amounting to P1.65 trillion—will be sourced from domestic creditors mainly through the issuance of treasury bills and bonds. The government borrows more locally to temper foreign exchange risks while taking advantage of flushing liquidity.
Of the Philippines’ record-high debt pile of P12.68 trillion as of end-March, 69.9 percent of total, or P8.87-trillion, were domestic obligations.
The DOF last Wednesday (May 25) proposed new and higher taxes, plus a three-year deferral of income tax reductions scheduled for individual taxpayers, to repay ballooning debts and bring down the level of these obligations that piled up during the protracted fight against COVID-19.
This proposed fiscal consolidation and resource mobilization plan will be turned over by the outgoing President’s chief economic managers to the incoming Marcos Jr. administration, for consideration in a bid to reduce the Philippines’ debt-to-gross domestic product (GDP) ratio faster and avoid a fiscal crisis.
At the end of the first quarter, debt-to-GDP — the better measure of a country’s capability to repay its debts — stood at 63.5 percent, the highest since end-2005 and above the 60-percent threshold deemed by credit-rating agencies as manageable among emerging markets like the Philippines.