The Bureau of the Treasury (BTr) expects the debt-to-GDP (gross domestic product) ratio to have fallen faster to 41.59 percent in 2019, better than its target of 41.72 percent, as it managed to raise around P995 billion during the year through a proactive borrowing strategy that reduced the government’s exposure to foreign exchange risks.
In its report to Finance Secretary Carlos Dominguez III, the BTr said preliminary data show that part of this proactive borrowing strategy are the issuances of about P185.7 billion in global bonds and P693.8 billion-worth of government securities.
External borrowings for 2019 also included P37.06 billion in project loans and P78.2 billion in program loans, the BTr said.
Domestic sources accounted for 70 percent of the government’s borrowings last year, achieving the BTr’s desired 7o-30 financing mix that aims to reduce the country’s exposure to external risks while developing the local debt markets.
“This proactive borrowing strategy took advantage of positive market developments to secure tight pricing for our global bond issuances,” National Treasurer Rosalia de Leon said in her year-end report to Dominguez.
De Leon said the BTr tapped various investor markets to diversify the government’s borrowing portfolio by issuing US$1.5 billion of 10-year global bonds in January last year, 750-million euros of ‘Euro’ bonds, 2.5 billion renminbi of ‘Panda’ bonds, and 92 billion yen of multi-tranche ‘Samurai’ bonds.
The US-dollar global bonds were priced 110 basis points (bps) above benchmark US treasuries, while the Euro bonds were priced 70 bps above benchmark. The 3-year Panda bonds were priced even tighter at 32 bps, while the multi-tranche Samurai bonds had a weighted average spread of 37 bps.
“We issued in the currencies of our top trading partners and in jurisdictions with abundant savings but low return opportunities, thus preserving the scarcity value of Philippine dollar bonds and the tightness of our sovereign issue spreads,” De Leon said.
She said the regular bond issuances in multiple markets also paves the way for the Philippines’ increased reliance on global bonds at minimal cost adjustments, in case access to official development assistance (ODA) is diminished by the country’s ascension to upper middle-income status, which is expected ahead of schedule this year.
Last year also marked the BTr’s first online offering of retail treasury bonds (RTBs) and the “Premyo Bonds” or prize bonds, which both aim to further develop the retail market for bonds and encourage small savers to participate.
The five-year RTBs issued in February last year with a coupon of 6.25 percent was four times oversubscribed during its initial offering, and raised P235.8 billion over the offer period.
Small investors were able to buy the RTBs online through the online ordering platforms of the Land Bank of the Philippines (LandBank) and the Development Bank of the Philippines (DBP).
The maiden issue of the Premyo bonds, meanwhile, exceeded the BTr’s target of P3 billion, with P5.96 billion raised from the sale.
De Leon said the Premyo Bonds had 13 times more online participants compared to the online RTB offering last February.
“Both retail issuances were complemented with regional and provincial roadshows, which included financial literacy sessions for individuals and treasury officers of cooperatives and local government units (LGUs),” De Leon said.
As a result of the prudent and effective debt management under the Duterte administration, she said the 2019 debt-to-GDP ratio target of 41.72 percent is projected to improve to 41.59 percent despite the scaling down of the GDP forecast by the Development Budget Coordination Committee (DBCC) to 6-6.5 percent from 6-7 percent for that year.
The BTr based its projections on the November 2019 actual debt data and the December 2019 preliminary cash flow data.
The BTr also estimates savings from interest payments to have reached P40.3 billion in 2019, De Leon said.
In 2019, the BTR also surpassed its income target of P18.5 billion with preliminary data showing that the bureau was able to earn P33.83 billion or 82.9 percent in excess of its goal.
“The excess income of the BTr-managed assets helped facilitate the funding of the Rice Competitiveness Enhancement Fund (RCEF) as mandated under the Rice Tariffication Law (RTL) to provide assistance to farmers, and the implementation of the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) to help advance peace efforts in Mindanao,” De Leon said.
On top of these accomplishments, the BTr also secured innovative risk transfer instruments to reduce the country’s future fiscal burden in the event of natural catastrophes.
These include a parametric insurance program for typhoons and earthquakes with coverage of P20.5 billion until Dec. 18 last year for 25 of the country’s most disaster-prone provinces.
The BTr also tapped the capital market for a US$225 million CAT bond coverage done in partnership with the World Bank last November. This provides protection against earthquakes and typhoon risks until 2022.
This issuance marked many firsts–the first CAT Bond for the Philippines; first CAT Bond for any Asian sovereign; first CAT Bond to be listed in the Singapore Exchange (SGX); first CAT Bond to be listed in any Asian exchange; and the first World Bank-issued CAT Bond listed in the SGX.
De Leon said the BTr is also preparing an indemnity insurance program with a maximum premium of P2 billion to cover state assets estimated to be worth P800 billion, which include schools in the country’s Eastern Seaboard, Metro Manila and Western Visayas, and roads and bridges in the country’s Eastern Seaboard.
This insurance protection covers typhoons, earthquakes, storm surges, floods and volcanic eruptions, with the payout based on actual losses.