State-backed GOCC debt down by 12% in ’12

The appreciation of the peso substantially helped in the decline of outstanding guaranteed debt of the government in 2012

MANILA, Philippines—Outstanding guaranteed debt of the government declined in 2012 due mainly to loan payments made by the borrowing state-owned entities and the appreciation of the peso.

Data from the Bureau of the Treasury showed that outstanding guaranteed liabilities amounted to P502.06 billion by the end of 2012, down by 12 percent from P573.37 billion in the same period in the previous year.

Guaranteed obligations of the government are loans secured by government-owned and –controlled corporations that tap guarantee support from the state to get lower borrowing costs. These obligations are added to government’s own debt stock, currently at over P5 trillion, in case the borrowing entities default.

Government officials said the rise of the peso last year was beneficial for the government and state-owned firms as this helped reduce the cost of foreign currency-denominated liabilities.

The peso, which ended 2012 at 41.05:$1, appreciated by nearly 7 percent against the greenback last year to become one of the fastest rising currencies.

Officials likewise said the government and state-owned firms last year benefited from the low interest rate environment, which allowed them to secure loans at a lower price.

The Bangko Sentral ng Pilipinas earlier reported that spreads on Philippine debt papers, measured in terms of the JP Morgam Emerging Market Bond Index (EMBI), fell to an average of 175 basis points last year from 196 basis points in 2011.

EMBI is the extra yield demanded by investors for choosing to buy Philippine debt securities instead of US treasuries.

The peso’s appreciation and the decline in spreads on Philippine debt papers were credited to improved outlook on the country’s creditworthiness, as manifested by the upgrades in the credit ratings last year.

Moody’s Investors Service and Standard & Poor’s last year upgraded their ratings on the Philippines from two notches to just one notch below investment grade.

Further declines in interest rates is expected following the country’s attainment of its first-ever investment grade from a major international credit-rating agency. Fitch Ratings last month raised its rating on the Philippines from BB+ to BBB-.