Pressed to improve the country’s debt ratios, the Arroyo administration has been retiring some of its more expensive short-term obligations, holding back on borrowing and cleaning up its yield curve.
National Treasurer Omar Cruz said yesterday that these efforts have translated into savings of up to P21 billion in the first nine months of the year from interests alone.
The bond swaps that created new benchmark bonds for the republic, according to Cruz, saved up another P10 billion to round up the total to P31 billion in the first nine months.
"The nice thing about cleaning up is that the savings you get are permanent," Cruz said. "We were able to swap some of our bonds for more liquid instruments, get longer terms, better yields and generally cheaper borrowing."
In contrast, savings generated from the appreciation of the peso could only occur when the peso is strong since the peso value of the country’s foreign debt actually goes down.
According to Cruz, the market has rewarded the government for its success at keeping its fiscal program in line with its target, despite fears that growth would be adversely affected by the decline in public spending.
After Congress failed to pass the 2006 budget, the Arroyo administration has been forced to operate under the reenacted 2005 budget and Cruz said the bureaucracy has adjusted to the limited spending space.
Congress has approved a supplemental budget for 2006 but Cruz said this would not take away the savings already made or alter the downtrend in the government’s borrowing requirement.
The decline in public borrowing has also eaten into revenues from withholding taxes on government securities but Cruz said the savings more than made up for the difference.
"You cant really rejoice from the revenues you’re getting from borrowing a lot," Cruz said. "As long as our cost of money is going down and we don’t have problems with our carrying cost, we will still come out ahead."