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The government sells dollar bonds to borrow from foreigners before 2021
Ian Nicolas Cigaral (Philstar.com) – December 2, 2020 – 1:07 pm
MANILA, Philippines – The Duterte administration ends the year with a foray back into the foreign debt market to raise new funds for 2021, when it is expected to increase spending and bolster the economy from a pandemic-induced recession.
To raise an unspecified amount, the government is selling 10.5- and 25-year US dollar-denominated bonds, Bloomberg reported early Wednesday. The Treasury Office confirmed the report, but did not provide additional details such as the coupon rate attached to the securities. The Secretary of the Treasury, Carlos Domínguez III, also did not respond to the request for details.
This international debt offering marks only the second time this year that the Philippines has borrowed money from offshore investors. In April, at the height of a fundraising initiative for the pandemic response, the government raised $ 2.35 billion of global bonds at record low interest.
For Ruben Carlo Asunción, chief economist at UnionBank of the Philippines, rebuilding the government’s war chest before a new fiscal year is a good strategy. “We have a good credit rating and I think we really should take advantage of it,” he said.
“We need all the momentum we can muster,” he said in a text message.
The dual-tranche offering was rated BBB + by debt observer S&P Global Ratings, following the Philippine investment grade sovereign rating that allows the public and private sectors to borrow at cheap rates.
For the past decade, the national government had borrowed from foreign investors in the first two months of the new year or just before the end of the year. It was a strategy aimed at anticipating financing needs, aimed at avoiding sudden market changes that generally do not occur before or after the holidays, which can make loans more expensive.
This time, however, it was a little different, not thanks to the pandemic. Throughout 2020, foreign loans had been a benchmark funding source for the government seeking to close a record projected budget gap for this year worth P1.82 trillion, equivalent to 9.6% of gross domestic product. A total of $ 10.6 billion in foreign grants and loans have been signed so far, and proceeds from the latest offering will only add to debt.
For the government, at this moment it seems necessary to take on more debt. While public needs are on the rise, revenues plunged 8.41% year-on-year in October due to low tax revenues from businesses that closed and consumers who stayed home while deferring spending due to fear of the virus.
But for Nicholas Antonio Mapa, a senior economist at ING Bank in Manila, cash itself is not a problem for the government, but rather how quickly money can be spent for recovery.
This is based on the fact that state spending, although it increased by 12.8% in the first 10 months, has decreased in the last 2 months despite the increase in public costs caused by the health crisis. From January to October, Treasury data showed that the deficit amounted to P940.6 billion, just 51.8% of the ceiling expanded this year supposedly to accommodate higher spending.
“The recently approved 2021 budget appears to show only a modest spike in spending during a supposed ‘recovery’ year for the Philippines,” Mapa said in an email.
“Securing funding does not appear to be a problem, but hesitancy to spend these funds can hamper the speed and trajectory of economic recovery,” he added.
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