National debt grows amid weak peso

MANILA, Philippines - The peso’s depreciation against other currencies continued to push the amount of debt the national government owes with the rest of the world as of the end of August, latest data from the Bureau of the Treasury showed.

The state debt pile hit P5.898 trillion for the first eight months, up 0.9 percent from P5.847 trillion recorded as of the end of July. Compared to the January to August 2014, liabilities rose by 3.2 percent.

According to a Treasury statement, the increase was driven by a rise in foreign debts “due to the continued impact of the peso depreciation” against the US dollar and other major currencies. Domestic debts, meanwhile, even declined.

Broken down, local debts totaled P3.856 trillion, while their foreign counterparts reached P2.042 trillion. The former dipped 0.1 percent, but the latter rose by a faster 2.7 percent in August.

Capital has been flowing out of Asia, including the Philippines, in recent months as investors weigh the possibility of higher interest rates in the US — considered as investor safe haven - with weakness in emerging markets such as China.

In turn, this pushed down the value of currencies in the region against the greenback. As of October 1, the peso, in particular, has declined 4.47 percent against the US unit since it closed at 44.72 in Dec. 29, 2014, the last trading day of that year.

A weaker currency means the country will need to shell out more pesos to settle liabilities in dollars or other foreign units.

Earlier, Finance Secretary Cesar Purisima said the Philippines is well-positioned to absorb the impact of the peso’s decline, saying state debts are mostly in pesos and therefore, not affected by currency swings.

Bulk of foreign and local debts are owed through government securities, Treasury data showed. State securities serve as investment outlets for investors by offering their money to the government, which pays it back with interest at a given time in the future.

For offshore liabilities, a total of P1.292 trillion in bonds were floated as of August. They are composed mainly of the US dollar bonds (P1.097 trillion), Japanese yen or samurai bonds (P38.598 billion), euro securities (P26.276 billion) and peso global bonds (P129.679 billion).

At the local front, outstanding Treasury bonds and bills are at a higher P3.855 trillion during the same period. Auctions for T-bonds and T-bills are held every two weeks.

The government borrows from the domestic and foreign markets to finance its budget deficit or to replace debts with high interest and short payment terms with low-yielding and longer-dated ones.

As of August, the budget deficit—which indicates more revenues were spent than earned—totaled P3.4 billion, way below this year’s cap of P283.7 billion. In August alone, a surplus of P15 billion was recorded.