Gov't debt fetch lower rates, longer payment terms

Prinz Magtulis (Philstar.com) - February 5, 2016 - 12:34am

MANILA, Philippines - Despite interest rates beginning to rise last year, the Philippines still managed to trim down levies charged on its debt pile, while also giving itself more time to settle them.

According to the Bureau of the Treasury data, weighted average interest rate of national government (NG) debt went down to 5.19 percent from 5.42 percent the previous year.

The figure was also better than the 5.53 percent recorded in 2013.

"The government was able to pay down higher-yielding maturing debts last year, which means lower burden for them," said Emilio Neri Jr., lead economist at the Bank of the Philippine Islands.

Broken down, domestic debts fetched an average rate of 5.46 percent, down from 5.69 percent a year ago.

Their foreign counterparts, meanwhile, have a lower interest rate of 4.67 percent from 4.90 percent during the same period.

Global financial volatility continued this year following a roller-coaster ride last year that culminated with the US Federal Reserve raising rates by 25 basis points.

That was the first hike in the US, the world's safe haven, for nearly a decade, attracting yield-seeking capital flows from emerging markets such as the Philippines.

Last week, National Treasurer Roberto Tan said the low interest rate era "are already over" and that higher rates could be expected by investors and government alike.

Neri, however, said the government is in a good position to absorb this, especially with longer payment terms for most of its liabilities.

Average debt maturity lengthened to 10.04 years from 9.90 years last year, separate data from the Department of Finance showed.

Foreign obligations have longer payment terms of 11.86 years, while domestic debts have 9.16 years.

Around 90 percent of total liabilities are also "long-term" in nature or with maturities of 10 years and up, Treasury figures showed.

"This should lighten the burden of servicing in terms of the time and the budget needed for them," Neri said in a phone interview.

"Although, we do expect further depreciation of the peso until maybe the Fed ends its normalization (of rates) this year," he added.

A weaker peso, which depreciated 5 percent against the dollar last year, was one of the reason tagged for a 3.8-percent uptick in NG debt.

The government's debt pile rose to P5.954 trillion by end-December last year.

The bulk of the debt or 91.85 percent have fixed rates, which mean their cost will not change with market rates.

Around 8 percent have floating interest, while 0.12 percent are "interest-free," data showed.

"We could see an increase this year with rising interest rates, but this could be very modest," Neri said.

"It will be nothing compared to the times of crisis in 2008 or during the Asian financial crisis in the 1990s," he added.

BANK OF THE PHILIPPINE ISLANDS BUREAU OF THE TREASURY DEPARTMENT OF FINANCE EMILIO NERI JR. FEDERAL RESERVE INTEREST LAST NERI PERCENT QUOT YEAR
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