Ukraine-Russia war fallout: PH unable to borrow P65B as creditors demand higher rates

The Ayuntamiento de Manila which houses the Bureau of the Treasury (From the Facebook account of the bureau)

MANILA, Philippines—The Bureau of the Treasury (BTr) has been unable to borrow a total of P65 billion so far in March — including P15 billion in T-bills on Monday (March 7)— as rates sought by domestic creditors further rose across-the-board after tensions at the Ukrainian-Russian border erupted into a full-blown war.

The BTr rejected all bids for P5-billion each in short-dated debt paper across the three tenors as National Treasurer Rosalia de Leon said that “markets continue to ask for higher risk premium with deterioration in market sentiment.”

In particular, De Leon said developments which pushed bid rates up included the escalating war between Ukraine and Russia, a weaker peso, and expectations of higher inflation, especially amid skyrocketing global oil prices.

Government securities eligible dealers (GSEDs) sought an average of 1.577-percent yield for the benchmark 91-day debt paper, compared with only 0.899 percent two weeks ago before the Ukraine-Russia war began. At Monday’s auction, bids for three-month securities hit a high of 2.5 percent and a low of 1 percent.

For 182-day treasury bills, the average rate jumped to 1.967 percent — a high of 2.75 percent and a low of 1.3 percent — from 1.157 percent last Feb. 21.

If the BTr fully awarded 364-day T-bills, the annual rate would have climbed to P1.943 percent — bids hit a high of 2.25 percent and a low of 1.65 percent — from 1.568 percent when these IOUs were last awarded.

This week’s average bid rates were also higher than last week’s as well as prevailing secondary market yields, the BTr said in a statement.

Last week, the BTr also rejected P15 billion in T-bills plus P35 billion in new three-year T-bonds.

Monday’s auction nonetheless attracted a combined P21.2 billion in tenders, or over 1.4-times bigger than the total offering. Even last week’s T-bill and bond auctions were oversubscribed, indicating that the local financial system remained awash in cash.

Not only domestic borrowings have become more expensive — even an offshore bond issuance would likely demand higher yields, De Leon said.

She cited upward pressures due to the forthcoming US Federal Reserve rate hike expected this month, plus global inflation risks spilling over from the Ukraine-Russia conflict.

The BTr had programmed P250 billion in borrowings this month. For 2022, the government’s borrowings will amount to P2.2 trillion, of which three-fourths were to be raised from the local debt market. The Philippines was also looking at issuing this year at least $500 million in “green” bonds for its climate programs and projects.

As far as the government’s cash position was concerned, it helped that the BTr issued five-year retail treasury bonds (RTBs) last month, which raised a total of P457.8 billion — P457.5 billion in new money, on top of P259.5-million worth swapped from maturing bonds. It was the government’s 27th RTB issuance as well as the Duterte administration’s 10th and likely last before a new President assumes office in mid-2022.

“By our funding activities in the domestic space, we are shielding our debt portfolio from volatility in the global financial markets, all while taking advantage of the commitment of the Bangko Sentral ng Pilipinas (BSP) to supporting the country’s economic recovery,” De Leon said last week.

“Proceeds from the issuance will help the country respond to the challenges posed by the pandemic and will support various programs for economic resiliency and recovery,” De Leon said.

It also helped that revenue collections continued to grow — for instance, the Bureau of Customs’ (BOC) collections of import duties and other taxes in February reached P59.04 billion, exceeding the P50.3-billion monthly goal by 17.4 percent, and up from P47.2 billion during the same month last year.

From January to February, the BOC’s tax take totaled P117.5 billion, up from P94.5 billion a year ago as well as higher than the P100.7-billion collections in the first two months of 2019, pre-pandemic.

The BOC’s end-February revenues accounted for 17.3 percent of its P679-billion full-year target for 2022, which Customs Commissioner Rey Leonardo Guerrero had said would be achievable.

Expensive oil would also bloat the BOC’s import bill and, in turn, the taxes to be collected from such shipments.

In a report on Monday, Singapore’s DBS Bank said the Philippines’ trade-in-goods deficit “likely remained wide” or over $5 billion last January “amid much stronger import growth relative to exports, which exerted downward pressure on the peso.” The government’s January international merchandise trade report will be out on Friday (March 11).

“[The Philippines’] trade deficit was on a broad widening trend over the course of 2021, reaching a record deficit of $5.2 billion in December 2021, as the economy loosened and shifted to targeted restrictions, recovering gradually from the pandemic,” said Taimur Baig, DBS chief economist, and Chua Han Teng, DBS economist.

TSB