BTr to auction P3.5-B promissory notes

The Bureau of Treasury (BTr) will auction P3.5-billion worth of five-year promissory notes next week, taking advantage of the excess liquidity in the market and a renewed optimism over the government’s prospects in being able to keep its deficit within manageable levels.

As interest rates came down across the board during yesterday’s auction, Treasury officials said they decided to move up the planned July auction to May 21, 2003.

Deputy Treasurer Mina Figueroa said yesterday that the proceeds from the promissory notes auction would be used to support the budget and expressed optimism that the market would receive the offer as aggressively as it went after yesterday’s Treasury bills offer.

According to Figueroa, the BTr expects maximum rates of 90 percent of the secondary market rate, considering the appetite of the market for government instruments.

"For instance, if the secondary market rate is 11 percent, banks could only bid as high as 9.9 percent," Figueroa explained.

According to Figueroa, market sentiment turned around in the wake of reports that the Bureau of Internal Revenue (BIR) surpassed all expectations as it overshot its own target for the first time since the Arroyo administration took over.

The performance of the BIR in April would make it more possible for the government to meet its deficit target in 2003 despite missing its first quarter target by over P5 billion.

The BTr has already reduced the volume of its weekly bond auctions from P3.5 billion to P3 billion for the third quarter, anticipating better performance of other forms of local borrowing.

The BTr had originally scheduled the issuance of promissory notes in July, but yesterday’s auction encouraged officials to offer the notes early while the market is still awash with excess liquidity.

The BTr also has plans of issuing another P500-million worth of three-year promissory notes which, unlike bonds and Treasury bills, are booked as loans instead of investments.

The volume of its debt, however, is expected to push the government’s debt service cost to at least P230.696 billion, almost half of its 2003 national budget and bigger than its P202-billion deficit for the year.

This year’s debt service cost represented a 24.16-percent increase over last year’s total interest expense which amounted to P185.8 billion for the whole year when the national debt was at around P2.9 trillion, excluding contingent obligations.

Official documents show that out of the P804.2 billion that the government plans to spend this year, about 29 percent would go into interest payments for domestic and foreign obligations, including loans assumed by the National Government.

During the second quarter, the Arroyo administration planned to spend P53.074 billion while P63.416 billion was allocated for the third quarter and P57.877 billion was allocated for the fourth and final quarter.

Documents revealed that of the total amount budgeted for debt service this year, about P151.83 billion was for servicing domestic debt, including P26.874 billion for servicing interest payments on T-bills; P99.649 billion for fixed-rate Treasury bonds; P12.824 billion for the interests on retail Treasury bonds and about P670 million for dollar-linked peso notes.

The government has allocated a total of P78.866 billion to service its foreign debts.