By Beatrice M. Laforga, Reporter

THE National Government’s outstanding debt inched closer to P11 trillion as of end-April after tapping the international debt market twice that month, the Bureau of the Treasury (BTr) reported.

Preliminary data showed the debt pile rose 2% to P10.991 trillion in April, from P10.77 trillion in the period ending March after the BTr issued more government securities here and abroad. The month’s debt tally was 27.8% higher year on year from P8.6 trillion as of April 2020.

Around P1.196 trillion was added to the debt stock so far this year, up 12% from the P9.795 trillion at the start of 2021.

Of the total, 71% of the debt portfolio were from domestic lenders while 29% were from external sources.

The local debt stock reached P7.812 trillion as of April, a tad higher than the P7.74-trillion level in March, and 33% bigger than the P5.863-trillion debt pile as of April 2020.

This was after more government securities were issued in April, bringing the total 0.9% higher to P7.271 trillion in April from P7.204 trillion in March.

Outstanding loans remained unchanged that month with P540 billion in advances from the Bangko Sentral ng Pilipinas and P156 million from other domestic borrowings. Assumed loans stood at P792 million.

Meanwhile, the outstanding external debt of the government grew by 4.9% to P3.179 trillion as of April from P3.029 trillion in March, mainly because of the two global bond issuances. Year on year, the tally climbed by 16.2% from P2.737 trillion in the same period last year.

Overall debt securities went up by 8.3% from the month before to P1.798 trillion. Euro-denominated bonds more than doubled to P234.64 billion as of April from P111.3 billion in March, after the Treasury raised P122 billion from a triple-tranche sale of euro bonds.

Total Japanese yen-denominated bonds also increased by 23% to P132.7 billion that month following the P24 billion it raised in three-year Samurai bonds.

The rest of the debt stock consisted of dollar-denominated global bonds (P113.136 billion), peso global bonds (P85.57 billion) and Chinese yuan-denominated notes (P18.6 billion).

Outstanding loans also inched up by 1% to P1.38 trillion after new loans worth P163 billion were obtained in April.

Guaranteed debt stock, meanwhile, went down by 0.2% to P434.74 billion as of April from P435.8 billion in March due to the net redemption of P750 million in local guaranteed obligations and P80 million in foreign guarantees. Year on year, this fell by 9% from P477.68 million.

Domestic guaranteed debt dipped by 0.3% month on month to P238.53 billion, while those owed to foreign lenders likewise slipped by 0.2% to P196.2 billion.

“Local-currency exchange rate fluctuations further lowered the peso value of external guaranteed debt by P1.57 billion while third-currency appreciation added P1.33 billion to the peso value of guarantees,” the BTr added.

A net redemption occurs when the Treasury pays back more debt than the new loans it obtains during the period.

The ballooning debt showed the need for the government to increase its borrowings to plug the widening budget gap, said Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort in a note on Thursday,

“The need to finance the purchase of more COVID-19 (coronavirus disease 2019) vaccines would also lead to some pick up in government borrowings/debt; as the commercial purchases for COVID-19 vaccines would be recurring in nature in the foreseeable future,” Mr. Ricafort said.

He said the country’s debt-to-GDP ratio could remain within the global threshold of 60% if the economy recovers in the coming months. He said this could give the state more room to hike spending, budget deficit and the debt pile to boost the economy.

The budget deficit shrank to P44.4 billion in April compared with the P274-billion fiscal gap a year ago, largely due to base effects. This brought the four-month deficit to P365.9 billion.

Official estimates showed the government’s debt stock could rise to P11.98 trillion by end-2021.

THE Philippine central bank is prepared to handle any changes in the US Federal Reserve’s monetary policy as local banks remain well-capitalized, its governor said.

“In any event, we’re prepared for any adjustments in Fed rates because our banks are well-capitalized and they are prepared, and we still have a lot of policy tools in our hands,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said at a press briefing on Thursday.

The capital adequacy ratio of local banks stood at 16.72% on a solo basis at the end of last year, way above the 10% minimum required by the BSP.

Mr. Diokno believes the Fed will try avoiding raising its policy rates ahead of the upcoming midterm elections in the United States in 2022. The US central bank will have its next policy-setting meeting on June 15 and 16.

Reuters reported that Federal Reserve policy makers have begun to acknowledge they are closer to debating when to pull back some of their crisis support for the US economy, even as they say it is still needed to bolster the recovery and employment.

Investors are waiting to see when the Fed will start tapering off its bond purchases as the world’s biggest economy continues to recover.

In a note on Thursday, UK-based Oxford Economics said the BSP may start raising key policy rates in the fourth quarter of 2022, much earlier than the Fed, given the projected strong economic growth and expectations that inflation will remain high.

“In most Asian emerging markets, especially in India, Indonesia, and the Philippines, we expect relatively strong potential GDP (gross domestic product) growth and relatively high inflation to keep policy interest rates substantially above those in the US and other developed economies,” the note read.

The Philippines’ gross domestic product (GDP) slumped by 4.2% in the first quarter, recording its fifth straight quarterly contraction since last year. The government’s economic team, however, is expecting GDP will grow by 6-7% this year, 7-9% in 2022 and by 6.7% each year in 2023-2024.

Meanwhile, the BSP estimated headline inflation may have settled at 4-4.8% in May, against the 4.5% print in April. The local central bank projected inflation will average at 3.9% this year, towards the higher-end of its 2-4% annual target.

The BSP kept its key policy rate at a record low of 2% last month to help the economy recover further.

Oxford Economics said it sees the Fed hiking its policy rates gradually starting 2023, amid the projected strong economic growth in the next two years and benign inflation.

The think tank also believes that any negative market reaction similar to the “taper tantrum” episode in 2013 will be mild in the Philippines, along with other emerging Asian economies such as India and Indonesia.

In 2013, markets responded negatively when the Fed signaled plans to roll back quantitative easing. Expectations of rising rates in markets deemed safe led to sharp outflows from emerging markets and forced central banks to hike their own interest rates.

“While taper tantrum-type pressure remains on the radar of emerging market policy makers and investors, in our view the external vulnerability of Asian emerging market including India, Indonesia, and the Philippines remains moderate,” Oxford Economics said.

It added that neutral policy rates for the US will likely be substantially lower than its real potential GDP growth, while the real neutral policy rates for the Philippines, along with Indonesia, could reach 2.5%. — Beatrice M. Laforga with report from Reuters