With commercial borrowing rates expected to rise next year, the Philippines is looking at sourcing more of its foreign funding requirements from low-interest official development assistance (ODA) than offshore bond issuances, a Department of Finance official said.
“We do not divide our borrowing program into ODA and commercial, but in broad strokes, we go through multilateral ODA first, and bilateral ODA, then commercial borrowing,” Finance Undersecretary Mark Dennis Joven said.
This tack “minimizes the overall financing cost and lengthens the tenor of our [debt] portfolio,” Joven explained.
Out of the national government’s record-high P11.97-trillion debt pile as of end-October, the bulk of outstanding obligations will mature after more than a decade. Some P7.76 trillion or 64.8 percent of debt had long-term maturities.
Budget documents show the national government programmed to borrow a total gross amount of P2.47 trillion next year, of which foreign borrowings worth P560.6 billion will account for 23 percent of total.
The planned external financing program for next year included P126.7 billion in program loans, which usually get injected into the national budget; P80.4 billion in project loans; and the largest chunk of P353.5 billion from bonds and other inflows.
Amid the COVID-19 pandemic, the Philippines issued US dollar-denominated global bonds, yen-denominated samurai bonds, as well eurobonds to finance the ballooning budget deficit. It did not raise funds from yuan-denominated panda bonds during the past two years despite issuances in 2018 and 2019.
Joven said the Philippines ventured into eurobonds as its opening offshore commercial borrowing salvo in 2020 and 2021 due to low interest rates plus robust demand.
“For 2022, we have to consider that globally there’s a change in the benchmark rate. From Libor, it will fork into various benchmark rates. I think this may result in some instability in the interest rate market in the near term,” Joven said.
“That’s why we were coming prepared. As you can see, we have buffered up on the multilateral ODA side just in case the market becomes a little bit choppy,” he added.