THE Department of Finance is bracing for a likely futher rise in interest rates and borrowing costs in the coming months following the more aggressive stance from the US Federal Reserve along with the ongoing geopolitical tension between Russia and Ukraine.
The Philippine government is aiming to borrow a total of P2.2 trillion this year, of which 75 percent is expected to be sourced locally.
Of the P250 billion that the Bureau of the Treasury programmed to borrow this March and with only two auction days remaining, the Philippine government has so far awarded only P51.7 billion in government securities out of its P200-billion offering as investors sought for higher rates. After four consecutive auctions resulting in full rejection of bids, the Treasury in its last four auctions has recently been awarding some government securities.
Despite the full rejections of bids in its first four auctions, both National Treasurer Rosalia V. De Leon and Finance Secretary Carlos G. Dominguez III earlier said the government remained in a good cash position, given that it recently raised P457.8 billion from small investors through its sale of 5-year Retail Treasury Bonds.
ODA, global bonds
ON top of domestic sources, the government is also set to source one-fourth of its gross borrowings amounting to around P550 bilion from foreign lenders through official development assistance (ODA) loans and global bond issuances.
Of the total planned foreign borrowings this year, De Leon said they have programmed $7 billion (around P366.8 billion) for foreign commercial borrowings through sovereign bonds. For its first commercial offshore borrowing for the year through its recent three-tranche dollar bond issuance, the government raised $2.25 billion (around P118 billion).
Finance Undersecretary Mark Dennis Y.C. Joven told BusinessMirror it is likely that foreign borrowing costs would be higher in the remaining months under the Duterte administration given the hawkish signals from US Federal Reserve Chairman Jerome Powell that they could raise interest rates by more than 25 basis points in their next meeting or meetings if necessary, as it aims to rein in inflation. To recall, the US Fed recently raised interest rates by 25 basis points, the first increase in more than three years or since December 2018.
“If that’s going to be the case, then it’s always better to concentrate on number one, ODA bilateral or ODA multilateral tapos for commercials we concentrate on those currencies na medyo benign pa rin yung interest rate environment,” said Joven, who heads the department’s International Finance Group.
While overall multilateral financing costs are expected to rise because these are pegged on benchmark rates which have been increasing, Joven said costs of ODA bilateral financing such as those provided by Japan International Cooperation Agency, Export-Import Bank of China, and Export-Import Bank of Korea, will not be affected because the interest rates provided in these facilities are already fixed.
However, the finance official said they can only rely on the country’s bilateral partners for financing up to a certain extent.
“Syempre you need a certain volume and you cannot, bilaterals you know, do not typically provide program or budget support loans,” he noted.
As for the domestic debt market, Joven expressed optimism that the increase in rates being demanded by investors in the government’s auctions of debt papers would taper off moving forward since the country’s inflation rate is still better than that of US.
Mix may be tweaked
NONETHELESS, Joven said they may have to restudy if there is a need to reallocate the foreign versus domestic borrowing mix given the financing costs.
As of end-January this year, the government’s outstanding debt has already hit a new record-high of P12.03 trillion as the country needed to borrow more to cover a wider budget deficit given the bigger expenses amid the Covid-19 pandemic.
The national government also capped 2021 with a 16-year-high debt-to-GDP ratio of 60.5 percent.
This is expected to peak this year at 60.9 percent this year before going down to the 60.7 percent and 60.4 percent in 2023 and 2024, respectively, based on the latest estimates obtained by BusinessMirror from Finance Chief Economist Gil Beltran.
Meanwhile, the government expects the budget deficit this year as a share of the economy is expected to taper off to 7.7 percent this year from record-high 8.61 percent in 2021.
For this year, government revenues are projected to reach P3.3 trillion while disbursements will hit P4.95 trillion.
Of the tax revenues, the Bureau of Internal Revenue is tasked to collect P2.438 trillion while the Bureau of Customs is assigned a P679-billion full-year goal.
Customs Assistant Commissioner and spokesman Vincent Philip Maronilla said the reopening of the economy as well as the rise in oil prices will help the bureau hit their target this year.
“Much like in the past two years we will continue to implement the reforms we have started in terms of being able to monitor, assess, and collect the correct revenues,” Maronilla said.
For their part, Philippine Amusement and Gaming Corporation (Pagcor) Chairman Andrea Domingo told BusinessMirror they still do not see their gross gaming revenues (GGR) going back to prepandemic levels this year but they project their collection to be higher this year compared to 2021.
Domingo said they see their gross gaming revenues rising this year on the back of the influx of travelers coming into the country, reopening of the world economy and better and focused marketing strategies and entertainment.
“No, it cannot be back at prepandemic where GGR in 2019 was over P80 billion. I think if the trend continues and e-sabong is not halted, 2022 GGR may reach P45 billion to 48 billion from 2021’s P36+billion,” Domingo said.
Moving forward, DOF’s Joven said they are expecting revenues to return to prepandemic levels, especially in a post-Duterte administration.
“We expect of course that we’re past the hump in terms of in terms of the pandemic…We expect that, you know, barring unforeseen circumstances, both tax revenues and, you know, and other revenues will improve, will go back to, you know, pre pandemic levels. If this is going to be the case then we expect a smaller deficit. Smaller deficit would mean lesser borrowing costs,” he said.
Image credits: Jae Denise Adolfo