Weak tax take due to tepid economic activity has forced President Duterte to rely more on borrowings and embark on a large-scale fund-raising to boost the government's fiscal firepower against the pandemic.
STAR/ File
Weak demand looms for gov't retail bonds next week
Ian Nicolas Cigaral (Philstar.com) - July 6, 2020 - 5:52pm

MANILA, Philippines — The Duterte administration will be borrowing anew to fund its pandemic response, this time from small investors some of whom are unlikely to lend out standby funds as they dip into their savings to survive the outbreak.

In a briefing on Monday, livestreamed through social media, presidential spokesperson Harry Roque announced the government would offer retail Treasury bonds (RTB) on July 15. National Treasurer Rosalia de Leon confirmed the plan, but said details such as size and maturity of the offer will be released “within the week.”

“RTBs are government bonds, meaning this is a direct obligation of the government to investors. This is one of the safest investment outlets where we can place our money,” Roque said in Filipino.

“More than that, RTBs are affordable. If you have salaries on the 15th (of the month), we are encouraging you to invest on RTBs for our country,” he added.

RTBs are securities offered at a minimum amount of P5,000. The bonds generally cater to small investors such as typical employees and small- and –medium enterprises who are looking to gain interest from their money. For the government, RTBs are used to promote financial literacy.

Once issued, proceeds from RTBs would add to state borrowings that have seen a spike since March when lockdowns lowered economic activity and pushed down revenues that can be collected from consumers and businesses. Foreign borrowings for coronavirus disease-2019 (COVID-19) response alone amounted to $7.76 billion as of July 1.

Banks corner most orders

The fact that RTBs targets individual investors has concerned economists about the demand of the upcoming issuance considering that millions have been displaced, and by this time, some people may have already exhausted their savings to get by.

“It may be a challenge since the retail investors you mentioned were hit, one way or another, by the pandemic,” said Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, in an online exchange.

“If the government marketed this offer as an appeal to help the country deal with COVID-19, it may help the offer do better,” he added.

The last time RTBs were offered was in February, before the pandemic struck, where the government raised P310.8 billion charged with 4.375% annual interest. De Leon cannot say whether next week’s offer would surpass that. “We’ll see,” she said when asked.

“I believe there will be cautious and restrained demand for retail Treasury bonds given the relatively shaky prospects of effectively controlling the current state of the pandemic and its potential resurgence,” said Cid Terosa, dean of University of Asia and the Pacific’s School of Economics.

“If the Treasury bonds have a longer time frame, it is possible that some will take risks and bet on a dramatic upturn of the economy in the future or after a drug and/or vaccine can be developed,” he added.

However, it appears that at the end of the day, De Leon is banking on lenders, more than individuals, to deliver a successful fund-raising activity. While individuals “have been growing,” banks remain the majority of investors on RTBs through the years. 

That situation would work on the government’s favor, especially after the central bank recently slashed interest rates anew by a massive 50 bps to a record-low of 2.25%, freeing up more cash from bank vaults to the financial system looking for place to go. 

“Liquidity remains strong,” De Leon said.

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