THE PHILIPPINES on Thursday launched 10-year dollar-denominated bonds, fulfilling one of three plans to tap offshore markets this year to help finance bigger state spending on infrastructure and social services in order to prod overall economic growth to a faster lane.

The Treasury bureau announced in a notice on its Web site “the commencement of a global offering… of its global bonds, to be denominated in US dollars due 2028.” Lead managers for the sale were Citigroup Global Markets, Inc.; Credit Suisse Securities (USA) LLC; Deutsche Bank Securities, Inc.; Morgan Stanley & Company LLC; Standard Chartered Bank and UBS AG Hong Kong Branch.

While the notice did not say how much was on offer, Deputy Treasurer Ma. Sharon P. Almanza told reporters on Jan. 11 that the “[t]he size of the transaction is $2 billion: $1 billion in new money and $1 billion for liability management” via bond swap — a configuration confirmed yesterday to Reuters by a source with direct knowledge of the transaction.

S&P Global Ratings and Moody’s Investors Service yesterday said they rated the notes “BBB” and a provisional “Baa2,” respectively, mirroring the country’s own score that is a notch above minimum investment grade. Moody’s noted that proceeds from this bond sale “will be used to redeem outstanding bonds, as well as for general purposes including budgetary support,” adding that it “expects to remove the provisional status of the rating upon the closing of the proposed issuance and a review of the final terms.”

This is the second global bond sale under President Rodrigo R. Duterte, whose government sold $2 billion worth of 25-year bonds in January last year, raising $500 million in new money and swapping some $1.5 billion. The current offer’s tenor, one trader said, “should provide good demand because it is shorter.”

Finance Secretary Carlos G. Dominguez III said earlier this month that the government also plans to sell yuan-denominated “panda” bonds as early as this quarter and yen-denominated “samurai” debt “towards the end of this year.”

This year’s P3.767-trillion national budget is the first spending plan prepared by the Duterte administration, which aims to hike infrastructure disbursements to P1.84 trillion, or 7.3% of gross domestic product (GDP) when it ends its six-year term in 2022, from P1.098 trillion, or 6.3%, this year and 2017’s programmed P858.1 billion, or 5.4% of GDP.

This tack is key to spurring annual GDP growth to 7-8% in 2018-2022 from 2010-2015’s 6.2% average and 2016’s 6.9%. The government will report fourth-quarter and full-year 2017 GDP data on Jan. 23. — K. A. N. Vidal with Reuters

By Krista A. M. Montealegre
National Correspondent

THE PHILIPPINES is stepping on the gas on the rollout of its public infrastructure program that will allow the economy to avoid the so-called middle-income trap and sustain its high growth trajectory.

During the First Global Forum on Infrastructure Strategies in Pasay City on Thursday, Budget Secretary Benjamin E. Diokno said that President Rodrigo R. Duterte met with him, Finance Secretary Carlos G. Dominguez III and Public Works and Highways Sec. Mark A. Villar on Wednesday night and they agreed that “most” of the big-ticket infrastructure projects will be on a turnkey arrangement.

“We will not spend a single peso. We will pay them after it is done…,” Mr. Diokno explained.

“That makes a lot of difference. It means it will speed up implementation. How are they going to finance? They have to borrow money from us.”

Rolando G. Tungpalan, undersecretary of the National Economic and Development Authority, said 24 out of the 75 flagship infrastructure projects have been approved by the government’s economic policy-setting body as of this month.

“Twenty-eighteen is the rollout year for the flagship projects and all hands are on deck to make these happen. You will see more action on the ground,” Mr. Tungpalan said.

These projects include the Metro Manila Subway’s Phase 1, Bonifacio Global City-Ortigas Center Link Road, Binondo-Intramuros Bridge, Panguil Bay Bridge, New Bohol Airport, Mindanao Rail’s Phase 1, Metro Rail Transit-Light Rail Transit Common Station, Philippine National Railways (PNR) North 2 and PNR South Long-Haul.

“Our hefty allocation for infrastructure is proof that we mean what we say, that we are serious in achieving the promises of the president to bring development to the whole country,” Mr. Diokno said.

The government aims to spend P8.13 trillion on infrastructure until 2022 — when spending will account for 7.3% of gross domestic product — in a bid to boost economic growth to 7-8% starting this year from 2017’s 6.5-7.5% target.

Addressing infrastructure bottlenecks should allow the Philippines to steer clear of the middle-income trap, in which growth stagnates due to lack of structural support for sustained expansion of economic activity, said Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Gunigundo. “Elements that brought about growth — favorable demographics, very good labor market dynamics — these items disappear at some point. What is good is the Philippines is still a long way from that point,” Mr. Gunigundo said.

A global strategist noted that the Philippines’ infrastructure spending target is hovering around the 8.0% of gross domestic product level needed to kick off a period of “long-term, steady and predictable” growth cycle. “This government is for real on infrastructure spending,” said Parag Khanna, leading global strategist and managing partner at advisory firm Hybrid Reality, Pte. Ltd.

Mr. Khanna said the infrastructure program should help the Philippines create 10-15 “very strong, robust, functional” urban clusters nationwide that, in turn, will discourage mass migration and spread economic opportunities beyond development hubs like Metro Manila.

“Don’t just build the same way as it has been built in the past… ‘Build, Build, Build’ is great but we shouldn’t hear ‘Build, Build, Build’ 20 years from now in the same places,” Mr. Khanna said.

The world needs to invest $3.3 trillion annually through 2030 to build a network of transportation, energy and communications infrastructure, he said.

China’s “One Belt, One Road” initiative is leading the linkage of megacities across geographical jurisdictions and this is increasingly important for Southeast Asia as it deepens the integration of its economy and complementary supply chains.

“The potential of Southeast Asia is absolutely limitless, but it is only when you bring supply chains together that can this region compete,” Mr. Khanna said.

The private sector is excited about the opportunities that will be created by improved infrastructure.

“We agree that it will bring multiple-level of activity into the economy and create a lot of opportunities not just for financial institutions like ourselves, but actually a great level of economic activity for all walks of life,” ING Bank Country Manager Hans B. Sicat said.

By Melissa Luz T. Lopez
Senior Reporter

SUSTAINED investor optimism over enactment in December of the first of up to five planned tax reform packages drove more foreign funds to the Philippines that month, leaving the full-year net outflow smaller than the central bank’s projection.

Foreign portfolio investments posted a $456.93-million net inflow last month — the biggest amount in 17 months — more than four times the $107.71-million net inflow in November and a turnaround from the $314.65-million net outflow in December 2016, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

These investments are often called “hot money” as these enter and leave the country with ease.

December marked the second straight month of net inflows with the biggest amount since the $1.067 billion posted in July 2016.

Progress on the first tax reform package was a key driver for investor confidence in 2017, the central bank said. Optimism has been fueled since the Tax Reform for Acceleration and Inclusion (TRAIN) moved at the House of Representatives in May, culminating with its enactment on Dec. 19.

December saw the Philippine Stock Exchange index sustain its rally to close at 8,558.42 as a new peak on the last trading day of the year. The peso also traded at the P49 level against the greenback that month, its best performance in six months.

The Philippines’ rating upgrade from Fitch Ratings, a stable inflation and policy rates, and the government’s issuance of P255 billion in retail Treasury bonds also fueled optimism among foreign investors, Security Bank Corp. economist Angelo B. Taningco said via e-mail.

Fitch raised the country’s credit rating to “BBB”, one notch above minimum investment grade, with a “stable” outlook to match the ratings given by other international debt watchers.

Global investors went to place $1.559 billion in the Philippines — the biggest gross inflow since June’s $2.016 billion — which was partly offset by $1.102 billion plucked out of the country. These amounts compare to the $1.055-billion inflows and $1.37-billion outflows in December last year.

FED POLICY NORMALIZATION WEIGHS
Still, the full-year tally amounted to a $205.03-million net outflow, a reversal from 2016’s $404.43-million net inflow.

But this is smaller than the $2.5-billion hot money net outflow expected by the central bank for 2017.

“It’s still part of the negative sentiment in other countries in the emerging markets in the face of the expected US Fed normalization. In effect, people are more gung-ho about prospects in developed economies like the US,” BSP Deputy Governor Diwa C. Guinigundo told reporters yesterday.

International investors placed $16.063 billion in total funds last year, which was offset by $16.268 billion that they pulled out of the Philippines.

The second quarter saw the biggest net inflows amid “accelerated” net foreign buying, partly on the World Bank’s positive comments about the Philippines.

“[W]hile net outflows were noted starting in the first quarter of the year attributable to international and domestic developments, the figure has subsequently declined as investors reacted positively to the various developments in the country,” the BSP said in a statement.

The United Kingdom, United States, Singapore, Luxembourg and Malaysia were the biggest sources of foreign investments in 2017, accounting for three-fourths of the total.

On the flip side, 80.2% of the outbound capital fled to the US.

“The ‘noises’ of 2017 seem to have been muted by many investors, both foreign and local alike. This is evidenced by the generally positive sentiment about the economy and its stable macroeconomic fundamentals despite all the doubt and fear about the fate of the economy under (President Rodrigo R.) Duterte,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said separately.

The BSP has said that concerns over interest rate hikes from the US Federal Reserve coupled with uncertainty towards the local mining industry hounded business sentiment in 2017.

The Fed increased policy rates three times last year and has held on to plans for additional rate hikes in 2018.

Despite this, local financial markets rallied in December on optimism fueled by tax reform.

Philippine policy makers have said that they need not move in step with the Fed as domestic conditions remain favorable.

The central bank expects $900 million in net outflows this year.

“The next phases of the tax reform package in the latter part of 2018, including the proposed general tax amnesty, as sources of additional government revenues and overall fiscal performance improvements, would be a future source of positive sentiment on the local financial markets,” said Michael L. Ricafort, economist at the Rizal Commercial Banking Corp.

The rollout of more infrastructure projects would also support business optimism, he added.