Monetary Board okays OFW bond issuance

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has given the National Government the green light to float retail bonds for overseas Filipino workers (OFWs), a member of the seven-man policy setting Monetary Board (MB) said yesterday.

The official who refused to be identified said the MB approved the other day the planned issuance of retail bonds for OFWs of up to $1 billion.

“The MB has approved it in principle amounting to $1 billion with an initial issuance of $500 million,” the official said.

However, the initial approval was given by the policy-making body despite some questions regarding the planned borrowing.

The board, the official said, had some apprehensions about the planned issuance of retail bonds as only 20 percent of the total issuance would go to OFWs while the rest would be sold to foreign currency deposit units (FCDUs).

The Department of Finance (DOF) plans to sell OFW bonds by the end of April after getting the green light from the BSP.

Officials of the Bureau of the Treasury said the planned issuance would amount to $500 million consisting of $400 million denominated in dollar as well as $100 million denominated in euros.

The DOF has already obtained the approval of President Arroyo authorizing the BTR to sell up to $1-billion OFW bonds.

Latest data from the BSP showed that OFW remittances grew by 5.6 percent to a new all-time high of $17.35 billion last year from $16.42 billion in 2008. The remittances accounted for at least 10 percent of the country’s gross domestic product (GDP). This year, the BSP expects OFW remittances to grow by at least six percent to a new record level.

The government trimmed its domestic borrowings by 3.2 percent to P107 billion in the second quarter of the year from the programmed borrowing of P110.5 billion in the first quarter of the year as it expects to book the proceeds of its foreign commercial borrowings including the OFW bonds as well as concessional official development assistance (ODA) loans from multilateral lending agencies led by the World Bank and Japan International Cooperation Agency.

The government had raised $1.5 billion through the sale of dollar-denominated bonds last January and another $1.1 billion from the sale of Samurai bonds last February

The Philippines is in dire need for funds to plug its yawning budget deficit. It hopes to trim the budget shortfall to P293 billion or 3.5 percent of GDP from a record level of P298.5 billion or 3.9 percent of GDP last year eclipsing the previous record level of P210.7 billion or 5.3 percent of GDP booked in 2002.

The government relies heavily on foreign and domestic borrowings to finance its budget shortfall as tax collections remain down in light of the weak domestic economy.

Adverse external developments forced the Arroyo government to abandon its commitment to balance the budget last year and even its original commitment to put its fiscal house in order by 2010 under the Medium Term Philippine Development Plan (MTPDP).