Weak peso, Panda Bond sale in China pushed PH debt to P6.879-T in Q1

Due to a weaker peso as well as the government’s issuance of debt paper in China in March, the national government’s outstanding debt increased to a fresh record high of P6.879 trillion at the end of the first quarter.

The government’s outstanding obligations as of end-March inched up 0.9 percent from P6.82 trillion in February as well as jumped 11.1 percent from P6.189 trillion in March last year, the latest Bureau of the Treasury data released Monday night showed.

Domestic debt, which accounted for 65 percent of the total, rose 0.8 percent month-on-month and 12.6 percent year-on-year to P4.46 trillion.

In a statement, the Treasury attributed the month-on-month increase to “net issuance of government securities amounting to P35.82 billion and peso depreciation,” noting that the domestic currency weakened to 52.25:$1 at end-March from 52.07:$1 in February.

Foreign debt

External debt, meanwhile, climbed 0.9 percent month-on-month and 8.6 percent year-on-year to P2.413 trillion.

The higher foreign debt from February levels was “due to the combined effect of peso depreciation and the upward adjustment in third currency-denominated debt amounting to P8.26 billion and P1.72 billion, respectively,” the Treasury said.

“Additionally, net issuance for the month amounted to P12.34 billion, including the successful inaugural issuance of Panda bonds ($233 million),” the Treasury added.

Panda bonds

To recall, the government sold 1.46 billion renminbi or nearly P12.2 billion in three-year panda bonds in China at a tight yield of 5 percent.

Last week, economic managers increased the share of foreign borrowings to the total financing program in the next five years, citing “good” rates being offered by China, Japan and South Korea to finance priority projects and programs.

The Cabinet-level Development Budget Coordination Committee (DBCC) had adjusted the financing program to 65-percent domestic, 35-percent external for this year from the 74:26 mix approved during its meeting last December.

“With the pre-funding exercise in the sale of treasury bonds in fiscal year 2017, there is a lower requirement for local financing in 2018,” the DBCC had explained.

In January, the Philippines sold a total of $2 billion in 10-year dollar-denominated global bonds at a coupon rate of 3 percent.

The government also plans to issue yen-denominated samurai bonds in Japan before yearend.

Borrowing mix

For 2019 to 2022, the borrowing mix will be 75:25 in favor of domestic sources, even as there was an increase in the share of foreign borrowings from 20 percent previously.

As for the adjusted financing mix for the next four years, the DBCC had explained that the government was “diversifying its investor base and tapping new markets to meet its financing requirements at the most cost-efficient manner.”

Despite a programmed increase in foreign borrowings, “the debt-to-GDP [gross domestic product] ratio is also projected to continue its decline from 42.1 percent in end-2017 to as low as 38.9 percent in 2022,” the DBCC had said.

Foreign loans

Budget Secretary Benjamin E. Diokno had said that the new borrowing program would “allow the Philippine government to take advantage of foreign loans.”

“We are getting offers from both China and Japan—good rates, for example, for the Metro Manila Subway [project]. We’re going to get the best terms possible… South Korea is also offering. Because of these possibilities, we have raised the amount of money [to be borrowed] from foreign sources,” Diokno had said.

Interest rates for soft Chinese loans are at about 2 percent, Diokno had noted.

The recently approved official development assistance from Japan for the subway, meanwhile, will be slapped interest of only 0.1 percent, with a repayment period totaling 40 years, including a 12-year grace period.