Tan: Gov’t likely to borrow $500 M in Q1

MANILA, Philippines – The Duterte administration is likely to borrow abroad for the first time in the first quarter of this year, sticking to tradition and raising $500 million from a planned global bond offer, National Treasurer Roberto Tan said.

“We prefer to execute our international commercial funding transaction in the early part of the year, subject to conducive market conditions,” Tan told The STAR in a text message.

The government borrows from the local and foreign markets to bridge its budget deficit and pay existing debts.

Under the 2017 budget, borrowings are poised to decrease 9.22 percent this year to P631.29 billion.

Broken down, the bulk of credit will be denominated in pesos at P505.03 billion, while the balance of P126.26 billion will come from foreign sources. The latter includes the sale of bonds and from official development assistance.

Tan said permissions have already been requested for the planned sale.

“The Monetary Board (of the Bangko Sentral ng Pilipinas) has granted its approval-in-principle of this borrowing exercise,” he said.

“We are still awaiting the President’s authority on the same,” he added.

Approvals are secured from the central bank since money to be raised offshore could affect money supply and the foreign exchange rate. The President has the final go-signal for the borrowings,” Tan said.

Should the sale happen between January and March, the new government would follow a practice by the previous government to borrow abroad early on the year since 2011.

In 2011, the government issued $1.25 billion in global peso bonds and conducted a $1.5-billion offer in January and March, respectively. In the same month of 2012, the country issued $1.5 billion worth of 25-year bonds.

In 2013, Manila dropped foreign borrowing plans as the domestic market provided it with enough liquidity. It then raised $1.5 billion from dollar bonds in January 2014 and $2 billion from 25-year global bonds.

Last year, it sold $2 billion worth of 25-year dollar-denominated bonds.

Sought for comment, a bond trader at a local bank said the government may face higher interest rates, unlike in previous offers, when it borrowed abroad.

“While the market may have already adjusted, it is inevitable that interest rates will now be higher, following the US Fed adjustment and the prospects of a Trump presidency,” the trader said in a phone interview.

Higher rates do not bode well for the government which would want to funnel more funds to public projects than pay debts.

Earlier, Tan recognized rates may tread upward after the US Federal Reserve hiked interest rates anew last month and with president-elect Donald Trump looking to boost spending to support growth and attract investors.

“Despite these, the Treasury is confident that we will be able to successfully navigate market conditions and raise the necessary funding for government’s program,” Tan said.