Duterte government borrowing $500 M in first int’l foray

MANILA, Philippines – The Duterte administration is planning to borrow at least $500 million from its first ever foray in the international debt market early next year.

National Treasurer Roberto Tan said in an interview after yesterday’s auction of Treasury bonds the Philippines would likely foray into the foreign debt market either in January or February.

Tan said monetary authorities would assess the impact of the impending rate hike by the US Federal Reserve next month as well as the assumption of office by US president-elect Donald Trump in January.

“It has always been our tradition. Of course we will assess the market once a Fed decision is made in December and how the market will take it,” he said.

Tan said authorities would closely monitor the policies to be adopted by the 45th president of the US.

“We will continually monitor the market, assess whether it is the right time. In the past almost always we hold it either in the first or second month. It is only this year that we held it in the second month,” Tan said.

The Philippines raised $2 billion from the issuance of global bonds in February this year. About $500 million went directly to government coffers to help finance programs and projects while $1.5 billion was used to retire old expensive obligations.

“The important thing is clarity and certainty on what the policy of the Trump administration will be. So from now until the time he assumes, hopefully there are some greater clarity on economic and financial policies he will be pushing for. That will help the market in stabilizing,” he said.

For 2017, Tan said the government may borrow at least $500 million but has yet to determine the amount to be raised for debt liability management.

“We always consider liability management as a package with the new money so hopefully there is an opportunity for both transactions to be launched back to back,” he said.

The national treasurer said authorities have yet to determine if the Philippines would tap the foreign debt market only once next year.

“Right now we really have to find out first how market reaction would be after the Fed meeting and how the market behavior is turning out after that. The $500 million new money is quite modest based on our volumes and our capacity to generate external funds,” he added.

The fresh borrowings would have a tenor of 10 years.

The Philippines borrows heavily to finance the country’s ballooning budget deficit. The government does not raise enough revenues to finance its expenses.

For 2017, the government is set to borrow P631.3 billion including P505.03 billion through the issuance of Treasury bills and Treasury bonds.

It intends to borrow P126.26 billion from foreign sources including multilateral lenders such as the Asian Development Bank, World Bank, among others. Of the total amount, about P24 billion would come from the issuance of global bonds.

During yesterday’s auction, the Bureau of Treasury raised P25 billion from the re-issuance of five-year T-bonds due over the next three years and nine months.

The debt paper fetched a higher yield of 3.977 percent from last month’s 3.605 percent.

“We got a fairly healthy volume of bids considering market conditions. Based on behavior of trading during the past two weeks there is already a trend toward higher rates and we found this to be acceptable given the pattern of trading where there is a direction towards higher yield because of the developments particularly in the US,” Tan said.