By Luisa Maria Jacinta C. Jocson, Reporter
Analysts suggest that the Philippines should increase its variety of sources for borrowing and increase its involvement in the international bond market.
Jonathan L. Ravelas, a senior adviser at a professional services firm, believes that the government is able to increase its debt due to its credit rating and dedication to its infrastructure program.fi
According to a text message from rm Reyes Tacandong & Co.
The government plans to release Islamic bonds or Sukuk bonds by the end of the year or 2024, according to National Treasurer Rosalia V. de Leon. This would be their first time issuing bonds in the Islamic market.
According to Security Bank Corp. Chief Economist Robert Dan J. Roces, the Philippine government’s decision to enter the Islamic bond market through a Sukuk issuance is a smart move that may expand its pool of investors and potentially lead to more favorable conditions. This move is in addition to the government’s $5-billion program for commercial bonds, indicating a strong focus on securing external funding.
The government has proposed a borrowing plan of $2.207 trillion for this year, with P1.654 trillion coming from domestic sources and P553.5 billion from foreign sources.
The government intends to issue $5 billion (equivalent to approximately P283 billion) in international bonds within the current year.
25-year U.S. dollar bonds
In January, the Philippines successfully obtained $3 billion through the issuance of 25-year U.S. dollar bonds.fi
First bond offering in US dollars for the year.
According to Mr. Roces, it may be advantageous.fi
It is beneficial to broaden borrowing choices beyond traditional commercial and Sukuk bonds.
He mentioned that markets such as Euro bonds and Samurai bonds have lower interest rates compared to green bonds, which could appeal to investors who prioritize sustainability.
In April 2021, the government, led by President Rodrigo R. Duterte, obtained €2.1 billion (equivalent to P122.4 billion) through the issuance of three separate euro-denominated bonds. The following year, in April 2022, it raised 70.1 billion Japanese yen through a four-part Samurai bond offering.
According to Mr. Roces, the success of this borrowing plan depends on the country’s total debt and financial stability, which are currently under control.
During the peak of the coronavirus pandemic, the government increased its borrowing. As of the end of June, the National Government’s debt as a percentage of gross domestic product was at 61%, which is slightly lower than the 62.1% from the previous year.
Despite this, it remains just above the 60% benchmark deemed acceptable by international lenders for developing countries.
“Diversifying borrowing sources should help mitigate risks and provide balance in the financial portfolio. Also, given the global dominance of the US dollar, the US market offers signifi
The lack of liquidity is a concern. However, there are potential currency risks in the current economic climate, according to Mr. Roces.
The government plans to issue a retail Treasury bond in US dollars by the end of this month.
A trader shared via text message that they believe borrowing retail dollar bonds is a beneficial method for reaching out to our overseas Filipino workers (OFWs) who may have limited options for investing their hard-earned money.
The trader stated that it is beneficial for the government to have multiple options for borrowing. However, they believe that the BTr will still need to rely on local borrowing due to the current domestic liquidity.
The government’s borrowing strategy primarily relies on domestic sources (75%) to lessen exposure to foreign currency risk.
According to Nicholas Antonio T. Mapa, a senior economist at ING Bank N.V. Manila, choosing to borrow domestically remains the more secure choice.
“According to a Viber message, borrowing money from foreign sources is typically done to benefit from lower interest rates abroad or to expand the Philippine debt market. However, despite the option to borrow in a foreign currency, the majority of borrowing is still done domestically as a precaution against excessive currency and interest rate risks.”
He also stated that it is important to consider the impact of global events on financial markets.
Additionally, Mr. Mapa stated that the nation’s investment grade status may potentially mitigate the impact of elevated interest rates.
The speaker stated that while rates are high and there are uncertainties about exchange rates and policy direction, the Philippines may still be able to obtain debt at reasonably low rates due to its investment grade status.
The credit rating of the Philippines is currently higher than the minimum investment grade according to three major debt rating agencies. S&P Global Ratings has given a rating of “BBB+,” Fitch Ratings is at “BBB,” and Moody’s Investors Service rates the country as “Baa2.”