THE PHILIPPINES on Tuesday sought to drum up interest in the sale of yenggdenominated bonds planned next quarter, with economic managers pitching the country’s growth story to Japanese businessmen who gathered for a briefing in Tokyo.
Finance Secretary Carlos G. Dominguez III in his opening remarks at the Philippine Economic Briefing, a copy of which was e-mailed to reporters, recalled that the outcome of the government’s offshore bond sales earlier this year showed investor confidence in the Philippine economy.
“The tight spreads of our bond issuance indicate confidence in the fiscal and debt management of the Duterte administration. When we issued a $2-billion 10-year global bonds last January, we received a spread of 37.8 basis points over the US Treasuries. This is lower than the 67 basis points we received in the issuance in 2017, and much lower than the spread of the last Aquino administration bond issuance of 107 basis points,” Mr. Dominguez said.
“Last March, when we floated our 1.46-billion renminbi Panda bonds, China’s Lianhe Credit Rating Company rated them triple A. As a result, the Panda bonds fetched a spread of only 35 basis points over the benchmark,” he recalled.
“This year, we are also planning to issue around $1 billion worth of ‘samurai’ bonds.”
Mr. Dominguez then touted the government’s fiscal performance, particularly evidenced by better-than-expected revenues that enabled it to spend aggressively “without breaching the programmed fiscal deficit.”
“From January to May of this year, national government revenues rose by 20% year-on-year. Tax revenues grew by 19%… collections of the Bureau of Internal Revenue improved by 16%, and the Bureau of Customs’ collections grew by 31% over the same period last year,” he said.
Latest government data show that the country’s fiscal balance stood at a P105.86-billion deficit as of April, wider than the P30.2 billion recorded in the same four months last year. Revenues totaled P927.4 billion in January-April, while overall disbursements stood at P1.033 trillion.
He attributed the growing fiscal space to tax reform, starting with Republic No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law that took effect on Jan. 1 as the first of up to five such packages planned by the current administration, which ends its six-year term in 2022.
“We hope to consolidate this trend with the enactment of the second tax reform package,” said Mr. Dominguez, referring to the measure now in Congress that is designed to reduce the corporate income tax rate to match the regional average while removing fiscal incentives deemed redundant.
He also said that tax effort — or taxes collected as a percentage of gross domestic product (GDP) — rose to 14.3% in the first quarter from 13.4% a year ago. “This is the highest first-quarter tax effort we have ever achieved in the past 25 years. We are ready to match the tax effort of the best-managed economies in the region,” said Mr. Dominguez.
He said that revenues will be used to help support a planned $170-billion investment in infrastructure, boosting public investments to 7.3% of GDP by 2022 from 6.3% targeted this year.
Mr. Dominguez also sought to allay concerns about quickening inflation, saying this is “normal for a high-growth economy” and can be expected to slow toward yearend.
He also touted the country’s 6.8% economic growth clocked in the first quarter.
“We hope to achieve a faster rate for the rest of the year to bring us closer to the seven percent target that we set,” said Mr. Dominguez.
The government is targeting 7-8% GDP growth annually till 2022, and Budget Sec. Benjamin E. Diokno said earlier this month that he expects second-quarter expansion — scheduled to be reported on Aug. 9 — to clock at least seven percent as households, which contribute more than 60% to GDP, spent more on the back of TRAIN’s reduction of personal income tax rates.
Mr. Dominguez also told Japanese businessmen in Tuesday’s briefing that the government is looking to ease restrictions on foreign participation in more economic sectors and activities, further cut red tape and fast-track implementation of its infrastructure projects.
“On our part, we commit to further improve the ease of doing business, respect the sanctity of contracts and promote a more conducive climate for investments. We look forward to forging new partnerships with enterprises throughout the region. It is, after all, a shared future we are crafting today,” he said.
INFLATION’S WORST OVER?
In the same briefing, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. acknowledged that while inflation remains beyond target, latest forecasts show that the worst may be over for commodity prices.
“[T]here are definite signs that inflation is slowing down,” Mr. Espenilla said in his speech at the Philippine Economic Briefing in Tokyo.
The BSP chief said that latest full-year inflation estimates at 4.6% this year and 3.4% by 2019 could be trimmed: “Possibly we will revise this further downward as we move forward.”
Prices of widely used goods rose by 4.6% overall in May, the fastest climb seen in at least five years. This brought the year-to-date pace to 4.1% against the central bank’s 2-4% target for full-year 2018.
Mr. Espenilla said price spikes were caused largely by supply-side factors, particularly “significantly higher” global oil prices and higher excise tax rates under TRAIN.
The BSP’s policy-setting Monetary Board raised benchmark borrowing rates by 25 basis points in its May 10 meeting in order to rein in inflation and curb “second-round” inflation from expected higher wages and public transport fares.
Both Finance and central bank officials have noted, however, that inflation has been slowing month-on-month, improving chances that annual overall price hikes will fall within official target next year.
Still, Mr. Espenilla said the central bank is ready to act when deemed necessary.
“The BSP remains strongly committed to maintaining a favorable inflation environment and we stand ready to adjust our policy settings to achieve our inflation target,” the BSP governor said.
“We stand ready to adjust further as may be necessary to keep inflation expectations well-anchored.”
The BSP meets today for its fourth rate-setting meeting this year. Six out of 10 economists said in a BusinessWorld poll that they see the monetary authority keeping rates steady this week, but noted that at least one more rate hike is needed for 2018.
Analysts at DBS Bank, however, said the central bank would still need to raise interest rates at its meeting amid expectations of bigger money outflows and elevated inflation.
“Since the Bangko Sentral ng Pilipinas hiked rates at its last meeting (May 10), US rates have pulled back while the US dollar has consolidated somewhat. Despite this slightly more forgiving global environment, the BSP will probably hike again…” bank economists said in a report released yesterday.
The Singapore-based bank cited the persistent weakness of the peso versus the dollar, above-target inflation and a widening external trade deficit as bases for another rate hike.
“Without a clear hawkish stance, concerns of overheating have not gone away, and have kept the door open for more monetary tightening ahead,” DBS said.
But Mr. Espenilla said there is “limited evidence” the economy is overheating, noting that strong economic growth remains “sustainable.” — Elijah Joseph C. Tubayan and Melissa Luz T. Lopez

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