PHL to borrow PHP 310B locally in Q4

The Philippines is looking at borrowing PHP 310 billion from the domestic market in the fourth quarter, the Bureau of the Treasury (BTr) said on Thursday, amid expectations of further rate cuts that could drive yields lower.

The planned auctions put the government on track for its full-year borrowing target, National Treasurer Sharon P. Almanza said in a Viber message.

This year’s borrowing plan is set at PHP 2.57 trillion — PHP 1.92 trillion from domestic sources and PHP 646.08 billion from overseas, according to Treasury data. 

Interest rate cuts by the US Federal Reserve and Philippine central bank could push yields lower during auctions in the last quarter, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

He added that the lower borrowings are due to more holidays during the period. “Even borrowing requirements of the National Government are seasonally lower in the fourth quarter, with fewer maturities of government securities during the holiday-shortened month and quarter, though there might be some window-dressing activities toward the accounting yearend.”

The Treasury bureau would try to raise PHP 220 billion from Treasury bills (T-bills) and PHP 90 billion via Treasury bonds (T-bonds), it said in a notice posted on its website. In the third quarter, the BTr raised PHP 672.5 billion, higher than the PHP 630-billion program.

In October alone, the government plans to borrow PHP 145 billion — PHP 100 billion in T-bills and PHP 45 billion in T-bonds.

The government will hold five auctions for T-bills next month and will try to raise PHP 6.5 billion via the 91- and 182-day tenors at each auction. It will also offer PHP 7 billion in 364-day T-bills weekly. Next month’s auctions will be held on Sept. 30, Oct. 7, 14, 21 and 28.

Meanwhile, the BTr will try to raise PHP 45 billion via T-bonds at three auctions for PHP 15 billion each in October — via five-year bonds on Oct. 1, seven-year debt on Oct. 15 and 10-year paper on Oct. 29.

In November, the government will seek to raise PHP 90 billion from the domestic market — PHP 60 billion from T-bills and PHP 30 billion from T-bonds.

The Treasury will offer PHP 6.5 billion worth of 91- and 182-day T-bills and PHP 7 billion of 364-day debt at auctions on Nov. 4, 11 and 13.

For the long-term debt, the government will offer PHP 15 billion each in 20-year T-bonds on Nov. 12 and five-year debt paper on Nov. 26.

In December, the Treasury plans to raise PHP 75 billion from the domestic market — PHP 60 billion via T-bills and PHP 15 billion via T-bonds.

The BTr has four T-bill auctions scheduled for December. It will sell PHP 5 billion each in 91-, 182- and 364-day T-bills at each of the auctions on Nov. 25, Dec. 2, 9 and 16. It will also sell PHP 15 billion worth of 10-year bonds on Dec. 10.

Finance Secretary Ralph G. Recto, who is a member of the central bank’s Monetary Board, has said they could afford to slash interest rates further and match the size of the Fed’s rate cuts, Reuters reported.

“The Fed reduced by 50 basis points (bps). I think we can also do half a percent,” Mr. Recto a told a news briefing this week.

The Fed started cutting rates on Sept. 18, with a larger-than-usual half-percentage-point reduction, which will likely be followed by a 25-bp cut in both November and December, according to a Reuters poll.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. earlier said there was room for one more interest rate cut this year. The BSP’s next meeting is on Oct. 17.

Slowing inflation allowed the central bank to cut its key rate by 25 bps to 6.25% in August, its first rate cut since November 2020, ahead of major central banks including the Fed.

In the short term, the lower borrowing plan for the fourth quarter could drive yields lower unless the government issues an unscheduled borrowing such as a retail Treasury bond, a trader said in a text message.

Ms. Almanza has said the BTr had yet to decide if it would issue more retail Treasury bonds this year.

“So far, our auctions have been successful, and we have raised much more domestically, so it would depend on the deficit,” she said in mixed English and Filipino on Sept. 17. “We don’t have to really fill in the programmed borrowings for this year… So, for better management of costs and debt service, we don’t have to borrow everything.”

The government last issued retail Treasury bonds in February, when it raised a record PHP 584.86 billion at a coupon rate of 6.25%.

The trader also noted that the fourth-quarter borrowing schedule is almost equal to the scheduled maturities during the quarter.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at PHP 1.48 trillion or 5.6% of economic output this year.

DEBT-TO-GDP RATIO

Meanwhile, the Philippines’ household debt-to-gross domestic product (GDP) ratio fell to 12.1% in the second quarter from 13.2% a year earlier, showing “stable” liability management, the Institute of International Finance (IIF) said.

This was lower than the 47% average for emerging markets in Asia and the 60.9% global average, it said in a report.

For nonfinancial companies, the debt-to-GDP ratio in the three months ended June also declined to 26.8% from 28.7% a year ago. Philippine government debt fell slightly to 56.8% of GDP from 56.9%.

Debt in the Philippine financial sector also dropped to 7.6% of GDP from 8.8% a year earlier, the IIFC said.

The institute’s Global Debt Monitor looks at indebtedness across sectors in mature and emerging markets.

Richard Francis, Fitch Ratings senior director and co-head for the Americas, said the Philippines’ stable debt outlook continues to be supported by growth.

“There are some challenges there, but I think another key factor is that growth has actually been supportive of the Philippines’ rating as well,” he told a virtual news briefing on Wednesday night.

In June, Fitch Ratings affirmed the Philippines’ “BBB” investment grade rating and kept its “stable” outlook. A “BBB” rating means an economy can pay its debt.

Philippine economic growth averaged 6% in the first half, falling at the low end of the government’s 6-7% target.

Christian Kopf, head of Fixed Income and Currencies at Union Investment Group, said the Philippines could manage its debt given low borrowing costs.

“The Philippines is one country which does a very good job in its investor relations programs… and I think it does play out in the form of very low borrowing costs,” he told the briefing.

Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said debt still takes up a huge chunk of the country’s economic output.

“While the government’s debt-to-GDP ratio may have slightly declined, it remains a dominant factor in the system, with a debt that is more than 50% of GDP,” he said in a Facebook Messenger chat.

“Emerging economies are expected to have lower debt-to-GDP ratios because they typically have less borrowing capacity and must avoid excessive debt to maintain investor confidence,” he added.

Treasury data showed that the Philippines’ debt-to-GDP ratio will rise to 60.6% by end-2024. It is expected to fall to 60.4% in 2025, 60.2% in 2026, 58.4% in 2027 and 56.3% in 2028. – Aaron Michael C. Sy and Beatriz Marie D. Cruz, Reporters