As commercial borrowing rates are expected to rise next year, the Philippines plans to meet its foreign financing needs more from low-interest official development assistance (ODA) than from issuance of bonds. offshore bonds, said a finance ministry official.
“We are not dividing our borrowing program into ODA and trade, but broadly speaking, we go first through multilateral ODA, and bilateral ODA, then commercial borrowing,” said the undersecretary. Finance Mark Dennis Joven.
This tactic “minimizes the overall cost of financing and lengthens the duration of our [debt] portfolio, ”Joven explained.
On the national government record debt of 11.97 trillion pesos at the end of October, the bulk of outstanding bonds will fall due after more than a decade. Some 7.76 billion pesos or 64.8% of the debt had long-term maturities.
Budget documents show that the national government plans to borrow a total gross amount of 2,470 billion pesos next year, of which foreign borrowing worth 560.6 billion pesos will account for 23 percent of the total.
The external financing program planned for next year included 126.7 billion pesos in program loans, which are generally injected into the national budget; 80.4 billion pesos in project loans; and the biggest chunk of 353.5 billion pesos from bonds and other inputs.
Amid the COVID-19 pandemic, the Philippines has issued global bonds denominated in US dollars, samurai bonds denominated in yen, as well as Eurobonds to finance the growing budget deficit. It has not raised funds from yuan-denominated panda bonds in the past two years despite issuances in 2018 and 2019.
Joven said the Philippines ventured into Eurobonds when it opened a salvo of offshore commercial borrowing in 2020 and 2021 due to low interest rates and high demand.
“For 2022, we must consider that there is an overall change in the reference rate. From Libor it will split into various benchmark rates. I think this may cause some instability in the short-term interest rate market, ”Joven said.
“That’s why we came prepared. As you can see, we have amortized multilateral ODA just in case the market gets a little choppy, ”he added.
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