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MANILA, Philippines—The interest rates sought by local creditors on short-term government borrowings soared on Tuesday (May 10), a day after partial, unofficial results showed Ferdinand Marcos Jr. with an insurmountable lead in the presidential race.
With a domestic debt market jittery about high inflation, which think tank Moody’s Analytics last Monday said will be a “headache” for the next administration, the Bureau of the Treasury (BTr) was able to borrow only P5 billion out the P15 billion it wanted to raise from short-dated T-bills.
“The surge in April inflation continues to dampen market sentiment,” National Treasurer Rosalia de Leon told reporters after the BTr’s first fund-raising after the May 9 presidential elections.
Last month, headline inflation or the rate of increase in prices of basic commodities surged to a 40-month high of 4.9 percent year-on-year — above the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target range of manageable price hikes — due to expensive food and fuel.
“Domestic demand is the key driver to economic growth in the Philippines. Filipino households’ spending power will be increasingly strained by higher inflation,” Moody’s Analytics associate economist Sonia Zhu said in an email to the Inquirer on Monday night.
Asked by the Inquirer how the local debt market would react to a Marcos administration succeeding President Rodrigo Duterte’s, De Leon replied: “We’re not seeing significant movements in the secondaries, both in ROPs and local government securities,” referring to the prevailing market rate at which bonds issued here and abroad were being traded.
At Tuesday’s auction, only the shortest 91-day treasury bill, which the BTr will repay the principal plus interest within three months to government securities eligible dealers (GSEDs) — banks oozing with liquidity that they can afford to lend to the national government — was fully awarded with P5 billion in borrowings.
The average interest rate slapped on the three-month debt paper jumped to 1.531 percent on Tuesday from 1.272 percent last week. Local creditors would try to wiggle higher interest on money they’d lend to the government during times of uncertainty. The government, meanwhile, tries to save on interest payments, which get funded by debt servicing in the national budget. Higher interest and debts to be repaid under the annual budget, in turn, slash the amount which could have been productively spent on public goods and services.
This was why the BTr rejected GSEDs’ bids for the two longer T-bill tenors — the average interest rates, if the government pushed through to borrow P5 billion each in the 182- and 364-day IOUs, would have climbed above 2 percent.
For local debt maturing in six months, GSEDs offered to lend at an average interest rate of 2.165 percent, up from 1.635 percent last week. Their bid rates hit a high of 2.75 percent and a low of 1.69 percent.
As for one-year securities, the annual yield would have soared to an average of 2.329 percent from last week’s 1.933 percent had the BTr pushed through with borrowing P5-billion. Creditors’ offers to lend to the government for one year reach a high of 3.25-percent yield, and a low of 1.95 percent.
Besides tax and non-tax revenues being collected by the government, borrowings partly finance the budget, with the bulk of the money sourced locally to temper foreign exchange risks while taking advantage of flushing liquidity in the financial system. At Tuesday’s auction, for instance, GSEDs were willing to lend a total of P19.98 billion or nearly one-third more than the amount that the BTr wanted to borrow.
Out of the national government’s P2.2-trillion borrowings program for 2022, three-fourths or P1.65 trillion will be sourced from domestic creditors mainly through the issuance of treasury bills and bonds.
In the Philippines’ new record-high debt pile amounting to P12.68 trillion as of March, 69.9 percent of total or P8.87-trillion worth were domestic obligations.
Budget documents had shown that the national government will repay this year a new high of P1.3 trillion in debt — P785.2-billion principal amortization, on top of P512.6-billion in interest.
In 2021, the amount of debt paid by the national government hit a record-high P1.2 trillion in 2021, alongside the bigger obligations that piled up to finance the fight against the prolonged COVID-19 pandemic, BTr records had shown.
Last year was the first time that annual debt payments breached the P1-trillion mark. In 2020, at the onset of the COVID-19 crisis, the government settled P962.5 billion in debts.
Primary or amortization payments in 2021 amounted to P774.7 billion, also the biggest since 1986, per historical BTr data. The government paid P537.5-billion worth of amortization for domestic debts, and P237.2 billion for external obligations.
Interest payments last year reached P429.4 billion, also the largest since 1986. Interest paid for local borrowings such as treasury bills and bonds amounted to P333.3 billion, while interest settled for foreign debts were P96.1-billion worth.
Actual interest payments in 2021 were below the P531.5 billion set aside by the government, resulting in savings which partly narrowed the still record-high P1.67-trillion budget deficit last year compared to the previous estimate of P1.86 trillion.