Dominguez: Retail treasury bonds save the day for PH borrowings

Carlos Dominguez III —photo from the Department of finance

MANILA, Philippines — Finance Secretary Carlos Dominguez III has assured that the government can fund its budgetary requirements despite more expensive borrowing rates amid uncertainties wrought by the Ukraine-Russia war.

Dominguez on Tuesday (March 8) said that due to strong reception for the 27th retail treasury bond (RTB) issuance last month, “the government is well-positioned to meet disbursements despite the BTr’s [Bureau of the Treasury] rejections” of tenders at auctions in the past two weeks.

The latest offering of five-year RTBs raised P457.8 billion to finance the national budget, including economic recovery programs and projects.

National Treasurer Rosalia de Leon said the RTB offer had “good timing, good execution and good participation” ahead of Vladimir Putin’s continuing assault on Ukraine.

“Otherwise, we will take the bait of higher rates,” she said.

On Tuesday, the BTr again rejected all bids for P35 billion in seven-year bonds — the fourth-straight auction where domestic creditors factored the crisis into their bid rates.

“High bids drove the coupon for the new seven-year T-bonds to 6.5 percent, trending higher than the comparable secondary market benchmark. The auction was barely oversubscribed, with total bids reaching P36.3 billion,” the BTr said in a statement.

“Markets were still roiled by rising inflation fears from the surge in oil and commodity prices” amid the war, De Leon said. It did not help that the debt market was on a wait-and-see mode for the US Federal Reserve’s expected rate hike this month, she added.

Despite a total of P100 billion in T-bills and bonds rejected so far, De Leon echoed Dominguez, saying that the national government remained in a good cash position following the strong outcome of its latest fund-raising through RTBs.

Last Monday night, Dominguez told President Rodrigo Duterte that one of the indirect impacts of the Ukraine-Russia conflict included “a surge in interest rates or cost of borrowing, which was already expected to go up even prior to the crisis because of the US Fed’s tightening of monetary policies.”

“The conflict will increase the perception of risk in investments,” Dominguez warned the President.

As the Philippines had been eyeing to issue at least $500 million in “green” bonds for its climate resiliency initiatives, Dominguez said the economic team was currently “watching the markets very closely” for the right timing. Before the war erupted, Dominguez hinted in mid-February that the offering would have been “in the coming weeks.”

On the flip side, expensive oil would bloat the Bureau of Customs’ (BOC) collections of import duties on shipments’ value, hence could generate bigger tax revenues for the government.

At last Monday’s economic team briefing with Duterte, Dominguez maintained that the Philippines had limited economic and trading exposure to both Ukraine and Russia. However, President Duterte’s chief economic manager conceded that “the Philippine economy will likely be collateral damage — it is as if we are hit by a ricocheting bullet.”

“These indirect shocks are likely to be felt through four major channels — the commodity market, the financial market, investments, and the impact on our fiscal health,” Dominguez said.

“First, oil and food prices are expected to go up as Russia is the largest exporter of natural gas and wheat, while Ukraine is the fourth-largest exporter of corn,” Dominguez said.

“As the conflict continues, Ukraine and Russia’s main trading partners, predominantly the European Union, will look to trade with other countries such as the US and China, where we are buying both wheat and corn, thereby pushing up the prices of commodities in these markets as well,” Dominguez explained.

Also, “investments are likely to decline or at least be on hold in the face of uncertainty, which may cause investors from the West to be more conservative or postpone their planned investments,” Dominguez said, adding that “once sanctions are imposed, it will take a long time for investor and consumer confidence to return to normal.”

“Lastly, all the aforesaid economic impacts will likely require government support to protect our vulnerable citizens and the critical sectors most affected by the crisis and this will stretch our budget even further,” the finance chief added.

“We do not expect this crisis to last very long. However, there may be some lingering effects we have had — we have seen similar crises in the past such as the Gulf War in 1990, the Asian financial crisis in 1997, the oil price shock of 2008, and also the first Russia-Ukraine conflict in 2014, and we have weathered all of these crises very well,” he said.

“We have experienced crises whose effects were more severe and direct to the economy such as the Asian financial crisis in 1997 and the global financial crisis in 2008,” Dominguez told Duterte.

“These crises lasted much longer and yet we were able to get through them. Based on these experiences, we are confident that we have the tools and the preparation necessary to help our people through this crisis,” Dominguez said.

TSB