FMIC cites wisdom of borrowing offshore

By Melissa Luz T. Lopez
Senior Reporter
GOVERNMENT plans to borrow more funds abroad will help the state manage debts better, even amid rising interest rates and a weaker peso, a senior officer of one of the country’s biggest investment banks said.
“It’s really more of diversifying their funding source because they need a certain amount — P1 trillion is projected next year,” Christopher Ma. Carmelo Y. Salazar, senior vice-president at First Metro Investment Corp. (FMIC), said in a recent interview.
“Given that rates are going up, they want to explore other markets such that for the government, it would be the best for them,” Mr. Salazar, head of FMIC’s financial markets group, said in a recent interview.
The government plans to borrow up to P1.189 trillion in 2019, a third more than the P888.23 billion programmed this year.
A fourth or P297.2 billion will be sourced from external creditors, while P891.7 billion will be borrowed locally.
Earlier this month, National Treasurer Rosalia V. de Leon announced that the government has been looking to tap the euro as well as sukuk bond markets as new frontiers, on top of another sale of dollar-denominated debt besides yen- and renminbi-denominated papers.
“If they source everything here, since rates are going up, it might be expensive then. But by diversifying elsewhere, that allows them to at least manage their costs,” Mr. Salazar explained.
The Treasury raised $2 billion through a global bond sale in January, with half consisting of new money and the balance involving liability management.
The government also issued $230 million worth of renminbi-denominated “panda” bonds back in March.
Authorities are likewise looking at opportunities to tap the Japanese market via “samurai” bonds by October.
New foreign markets for government debt papers will help secure more funding for the aggressive public spending planned — programmed at more than P8 trillion — until 2022, when President Rodrigo R. Duterte ends his six-year term, Mr. Salazar said. In turn, this is expected to help fuel economic growth to a faster 7-8% annually up to that year in order to slash unemployment rate to 3-5% by 2022 from 5.5% in 2016 and poverty incidence to 13-15% also by 2022 from 21.6% in 2015.
Mr. Salazar said turning to new markets remains a sound plan despite the recent depreciation of the peso.
“That is something that they would have to (factor in),” one currency trader said.
“The peso is weakening right now but five years later, it might be a different story… It could be that the peso is stronger that time — that’s something that could be the situation.”
The peso has touched fresh 12-year lows since mid-June and is currently trading weaker than P53 per dollar.
Mr. Salazar noted that borrowed funds will augment the government’s cash for stepped-up infrastructure spending at a time that state revenues have lately logged double-digit rates of increase.
Treasury data show total revenue collections reached P1.411 trillion as of end-June, against disbursements worth P1.604 trillion.
As a developing economy, the Philippines borrows from local and foreign sources to fund increased spending and boost overall activity.