Government to rely more on local sources of funds

The Arroyo administration will be changing its borrowing mix and rely more on local lenders which are cheaper sources of funds.

The government will rely mainly on borrowings to finance a projected budget deficit of P145 billion this year, higher than last year’s actual deficit of P136.1 billion. Government is scheduled to borrow this year P191.5 billion, less than last year’s total borrowings of P198.3 billion but higher than the original target of P180 billion.

The Department of Finance (DOF) arrived at the change in figures in a recent meeting of the inter-agency Development Budget and Coordinating Council (DBCC).

Data from that meeting show that government decided to change its borrowing mix towards cheaper sources of funds.

This year, 74 percent or P211.3 billion of gross financing will come mostly from domestic sources and only 26 percent or P76.1 billion will be borrowed abroad.

This is in contrast to the financing mix in 2000 where 42 percent or P120.3 billion were borrowed abroad and only 58 percent or P164.9 billion were sourced from the domestic market.

The government as well as monetary authorities have been implementing a series of interest rate reductions following the decline in foreign interest rates, particularly in the US. Moreover, government has been encouraged by its fiscal performance in the first quarter where it has kept the deficit at a level lower than the set target for the period.

Earlier, the DOF has programmed a bond flotation of about $500 million in the international bond market in the second semester to help plug its budget deficit.

The government is already looking at possible sources of cheap loans from bilateral and multilateral creditors, while other previously untapped sources are also being explored.

The government, aside from citing domestic borrowing as a cheaper source of loans, also wants local lenders to benefit from its policy, which should increase lending activities of commercial banks currently dogged by lack of demand for credit. – Rocel Felix