BTr given go-ahead on another debt swap

The Bangko Sentral ng Pilipinas does not expect any liquidity problems from the government’s plan to implement another debt swap involving its peso-denominated liabilities.

“The central bank already gave [the Bureau of the Treasury, or BTr, on behalf of the government] its favorable opinion on the debt swap, and we expect the BSP to formally issue the opinion within the day,” National Treasurer Roberto Tan said Monday.

The government normally seeks the BSP’s opinion every time it intends to borrow in peso terms or engage in activities, such as a debt swap, involving peso-denominated liabilities.

The central bank is tasked to manage the amount of cash circulating in the economy.

Under a debt swap, the government offers holders of Treasury bonds that are about to mature the chance to exchange the instruments with bonds that will mature at a much later date.

The objective is to lengthen the average maturity of the government’s debts and give it more time to settle its liabilities.

Investors may agree to swap their bonds for longer-dated ones if they want to extend further their investments and potentially earn more interest.

The BSP’s favorable opinion came amid expectations that inflation would accelerate in the months ahead, and peak beyond 5 percent in the third quarter.

If the government were to decide against the debt swap, it would be forced to settle the maturing bonds, resulting in additional liquidity in the economy.

Higher liquidity may increase demand for goods and services, thereby further accelerating inflation.

The BTr has yet to decide on the amount of bonds it will offer bondholders in exchange for existing instruments.

However, a Treasury official said the government agency was considering an amount that would be about the same as the P200 billion worth of debt swap carried out in December last year.

According to Finance Secretary Cesar Purisima, a debt swap is but a way for the government to manage its liabilities.

Also, Tan said Purisima had asked the BTr to review proposals for the government to sell another set of OFW bonds.

Tan said that if the BTr were to determine that there was indeed a significant demand for OFW bonds, then it could undertake an issuance.

OFW bonds are government securities sold to Filipinos working abroad and/or their families. Last year, the government sold about $500 million worth of OFW bonds.