Debt ratio improves despite hike in borrowings

Manila, Philippines — The government’s proactive borrowing strategy that reduced the government’s exposure to foreign exchange risks is expected to further improve the country’s debt-to-gross domestic product (GDP) ratio despite the double-digit 10.8 percent increase in borrowings to P995 billion from P898 billion.

In a report to Finance Secretary Carlos Dominguez, National Treasurer Rosalia de Leon said the country’s debt-to-GDP ratio improved to 41.59 percent last year from 41.9 percent in 2018 and was better than the projected 41.72 percent.

Preliminary data from the Bureau of the Treasury showed the Philippines issued P185.7 billion worth of global bonds and P693.8 billion worth of government securities last year.

“This proactive borrowing strategy took advantage of positive market developments to secure tight pricing for our global bond issuances,” De Leon said in her year-end report to Dominguez..

External borrowings last year included the issuance of $1.5 billion 10-year global bonds in Jan. l, 750-million euros of ‘euro’ bonds, 2.5 billion renminbi of ‘panda’ bonds, and 92 billion yen of multi-tranche ‘samurai’ bonds as well as P37.06 billion in project loans and P78.2 billion in program loans.

“We issued in the currencies of our top trading partners and in jurisdictions with abundant savings but low return opportunities, thus preserving the scarcity value of Philippine dollar bonds and the tightness of our sovereign issue spreads,” De Leon said.

The national treasurer said the regular bond issuances in multiple markets also paves the way for the Philippines’ increased reliance on global bonds at minimal cost adjustments, in case access to official development assistance (ODA) is diminished by the country’s ascension to upper middle-income status, which is expected ahead of schedule this year.

On the other hand, domestic sources accounted for 70 percent of the government’s borrowings last year, achieving the government’s desired 70-30 financing mix that aims to reduce the country’s exposure to external risks while developing the local debt markets.

Last year also marked the BTr’s first online offering of retail treasury bonds (RTBs) and the “premyo bonds” or prize bonds, which both aim to further develop the retail market for bonds and encourage small savers to participate.

“Both retail issuances were complemented with regional and provincial roadshows, which included financial literacy sessions for individuals and treasury officers of cooperatives and local government units,” she said.

As a result of the prudent and effective debt management under the Duterte administration, De Leon said the 2019 debt-to-GDP ratio target of 41.72 percent is projected to improve to 41.59 percent despite the scaling down of the GDP forecast by the Development Budget Coordination Committee (DBCC) to a range of six to 6.5 percent from six to seven percent.