MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has given the National Government the greenlight to issue up to P500 billion worth of debt in the domestic market to take advantage of the low interest rates as well as the strong liquidity in the financial system.
BSP Deputy Governor Diwa Guinigundo said in an interview that the central bank’s Monetary Board has approved the additional P500-billion borrowing by the National Government from the domestic market.
“We just approved the National Government’s P500-billion borrowing (plan),” Guinigundo stressed.
He pointed out that it would be practical for the National Government as well as the corporate sector to tap the domestic market for fresh funds as the financial system is awash with liquidity, including the funds parked at the vault of the BSP in the form of special deposit accounts (SDAs) amounting to about P1.46 trillion.
He added that the National Government should also take advantage of the country’s low interest rate regime.
“It makes sense for corporates and the government to borrow from the domestic capital market. There is ample liquidity in the system and interest rates are low,” Guinigundo explained.
The Monetary Board slashed interest rates by 25 basis points last Jan. 19 due to manageable inflation and at the same time to boost the country’s slackening domestic output. This brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.
The BSP said it sees inflation averaging 3.1 percent, in the lower end of the three percent to five percent target this year, from 4.4 percent last year.
The Cabinet-level Development Budget Coordination Committee (DBCC) has forecast the country’s gross domestic product (GDP) expanding between 5-6 percent instead of the original target of 7-8 percent this year.
The GDP growth slackened to 3.2 percent in the third quarter of last year from 7.3 percent in the third quarter of 2010 due to weak global trade and underspending by the Aquino government. This brought the GDP growth to 3.6 percent in the first nine months of last year or lower than the revised GDP growth target of 4.5 percent to 5.5 percent.
According to Guinigundo, the issuance of peso-denominated securities would help smoothen the movement of foreign exchange market as this would not translate to a huge inflow of US dollars into the country.
“It will also help deepen the country’s capital market as it will translate to more demand for long-term funds,” the BSP official said.
The national government is currently reviewing its borrowing mix of 73:27 in favor of the domestic lenders and the decision to tweak the ratio would depend on the overall market conditions in the domestic market and abroad.
“As we’ve indicated in our plan, 73 percent of our borrowings for this year will be in pesos and 27 percent will be foreign currency. We can change it in the course of the year. It will depend on market conditions,” Finance Secretary Cesar Purisima said earlier.
Purisima pointed out that the government’s objective is to continue to lengthen the debt maturities, continue to reduce the country’s exposure to foreign currency, continue to limit bunching up and reduce its interest cost.
“We’re continuing to look at the market with opportunistic eyes,” the finance chief added.
The government is expected to cut its overseas debt sales to $2.5 billion this year from about $3.9 billion in 2010, and the remaining 73 percent of its 2011 funding needs from the domestic market.
The Philippines completed its second global peso bonds sale to overseas investors last Jan. 5, raising $1.25 billion, which also carry low interest rates compared with those available on the domestic market.
The January 2036 notes were priced at par with a yield of 6.25 percent, which will be settled offshore and payable in US dollars. The peso conversion rate used for the 25-year bond was 43.777 per dollar and bids for $3.6 billion of the debt were received.
Fiscal authorities are seeking to trim the budget gap this year to P290 billion from a ceiling of P325 billion in 2010. The government borrows heavily from foreign and domestic creditors to trim the budget shortfall.
The Aquino government has committed to trim the budget shortfall to two percent of GDP starting next year until 2016. - By Lawrence Agcaoili