A five-month record low inflation in April allowed the Bureau of the Treasury to award P15 billion in 35-day T-bills at a lower rate on Tuesday (May 5).
It helped that the Philippines was not at risk of falling into a debt crisis amid the COVID-19 pandemic, according to the London think tank Capital Economics.
National Treasurer Rosalia V. de Leon said that the five-week treasury bills were sold at 2.042 percent, “much lower” than the 2.714 percent that the returning debt paper fetched when auctioned off in March.
Tenders for the IOUs maturing on June 11, 2020 amounted to P73.252 billion, making the auction almost five times oversubscribed.
De Leon noted that since the headline inflation rate declined to 2.2 percent in April from 2.5 percent in March, more space was given the Bangko Sentral ng Pilipinas (BSP) to cut policy rates which would further pull down market rates for government securities.
The Treasury opened its tap facility window to sell another P15 billion of the 35-day T-bills.
Last Monday (May 4), the Treasury sold via tap P10-billion more of 364-day IOUs at 2.945 percent to 11 accredited securities dealers with bids reaching P31.705 billion.
Capital Economics senior Asia economist Gareth Leather said in a May 4 report that “government debt will increase sharply across the region” in 2020.
The Philippines is in good company with Indonesia, India, Thailand and Malaysia which do not face debt crisis.
But Leather said “national debt is likely to exceed 60 percent of GDP in most of these economies” by the end of 2020.
“Despite the prospect of weak demand, we think these countries will focus on bringing government debt down to more comfortable levels,” Capital Economics said.
The Philippines and Vietnam, it said, “should be able to ‘outgrow’ the problem.”
Last week, the Treasury said since the Philippine Statistics Authority (PSA) shifted its base GDP year from 2000 to 2018, nominal value rose 4.9 percent in 2019 and debt-to-GDP ratio fell to 39.6 percent from 41.5 percent with the year 2000 as GDP base year.
While the Philippines ramped up borrowings to finance COVID-19 response, De Leon said debt-to-GDP ratio, using the 2018 base, will likely rise to 44.95 percent, which is well within the projection of the Cabinet-level Development Budget Coordination Committee (DBCC) of 46.7 percent using the year 2000 as base.
Finance Secretary Carlos G. Dominguez III had said that such a higher debt-to-GDP ratio would still remain “low” compared with the Philippines’ neighbors.
Under the Duterte administration’s four-pillar socioeconomic strategy against COVID-19, the government planned to borrow an additional P310 billion from foreign lenders to augment funds.
De Leon had said that as the Philippines increasingly tapped loans from multilateral lenders like World Bank, Asian Development Bank (ADB) and the China-led Asian Infrastructure Investment Bank (AIIB), the actual share of foreign borrowings would be higher than the 25 percent of total which had been programmed for 2020.
Under the 2020 national budget and prior to the COVID-19 pandemic, borrowings were poised to hit a record P1.4 trillion, with 75 percent to be from local sources mainly through treasury bills and bonds.
But De Leon had said that the share of domestic borrowings to 2020’s total would decline to 70-72 percent.