Treasury sets P250-B domestic borrowing plan for September

The Bureau of the Treasury will auction off P250 billion worth of T-bills and bonds in September as the government continues to rely more on the local debt market.

In an Aug. 25 memorandum to all government securities eligible dealers, National Treasurer Rosalia de Leon said the Treasury would offer P15 billion in short-dated treasury bills—P5 billion each in 91-, 182- and 364-day bills—on Aug. 30 and the four Mondays of September.

The Treasury also plans to raise a total of P175 billion from the sale of bonds next month. It will sell P35 billion worth each of five-year debt paper on Aug. 31; seven-year on Sept. 7 and 21, as well as 10-year on Sept. 14 and 28. These bonds will be issued to investors on the five Thursdays of September.

The Treasury kept the weekly volumes of T-bills and bonds similar to the previous months’ offerings.

For this year, the government will borrow a total of P3.07 trillion, the bulk of which amounting to P2.49 trillion will be raised from the sale of treasury bills and bonds.

Under the proposed P5.02-trillion 2022 national budget, total borrowings will reach a lower P2.47 trillion.

“These borrowings will support both our public health response and the economic investments needed to spur growth. Following the pattern set in the past few years, the bulk of the borrowings will be sourced locally,” Finance Secretary Carlos Dominguez III told legislators at the start of the deliberations on the 2022 budget on Thursday.

Domestic borrowings will drop to P1.91 trillion in 2022.

High debt level temporary

“Although we have acquired additional debt to meet the health emergency, public borrowing remains well within sustainable levels … I would like to emphasize again that the increase in our debt level is only temporary. It did not stem from profligate public spending but rather resulted from a universal shock that deteriorated the financial positions of almost all countries around the world,” Dominguez said.

“The principal contributors to the increase in our debt are the weakening of the economy and lower revenue collections due to the lockdowns. Both of which are expected to recover quickly as soon as the infections are contained,” the Finance chief added.

Spending on goods, services

Debt-to-gross domestic product (GDP) ratio—which reflected a country’s capacity to repay its obligations—was projected to hit a 16-year high of 59.1 percent by year-end and further rise to 60.8 percent in 2022, slightly above the 60-percent threshold which debt watchers considered as a manageable public debt level for emerging markets.

“What sets the Philippines apart, however, is that we entered 2020 with a historic low debt-to-GDP ratio of 39.6 percent. This means we can better absorb additional borrowings than other countries whose debt ratios were already at 60 percent before the pandemic. Hence, the 15-percentage point increase in our debt-to-GDP ratio [to 54.6 percent] in 2020 is still within the prescribed bounds of fiscal viability and the experience of our neighbors and rating peers globally,” Dominguez said.

He also pointed to a lower average interest rate of the Philippines’ borrowings last year due to its investment-grade credit ratings, as well as declining

interest payments which meant that the government was spending more on public goods and services than debt service.

Dominguez said the Philippines had no problem with liquidity even amid the prolonged COVID-19 pandemic, but it was constrained by the widening budget deficit, which the government wanted to temper to keep its credit ratings intact.

As such, Dominguez said the International Monetary Fund’s $2.78-billion special drawing rights allocation—a liquidity-support facility—for the Philippines for 2021 was being explored with the Bangko Sentral ng Pilipinas to be converted into a fiscal space to ramp up government spending.