The Department of Finance (DOF) said the adjustment is necessary if government is to finance its programmed deficit of P130 billion for next year which is lower than this year’s target of P145 billion.
To ease the pressure of drawing from the cash reserves of the Bureau of Treasury, the government decided to also revise its borrowing mix in favor of foreign inflows.
Out of the required gross borrowings of P272.9 billion, P144.1 billion will be from foreign sources while domestic loans will comprise P128 billion.
At the same time, the government will also increase its provision for debt service next year by P3.6 billion to P159.2 billion from P155.6 billion this year.
Government said it prefers to tap offshore loans so as not to crowd out the private sector in vying for domestic loans.
Thus, government as early as last month, has been trying to seek cheaper funding options for its foreign borrowings for next year.
Finance Secretary Jose Isidro Camacho said earlier government has already several funding options in place for more than half of its projected $1.3 billion external funding requirements for next year, but wants to diversify into other funding sources that would make borrowing cheaper for government.
Specifically, government wants to negotiate for yen and Singapore-dollar based financing sources.
At the same time, it will also double the use of official development assistance (ODA) credits and focus on credit enhancements through loan guarantees from the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI) and the World Bank.
Camacho said any residual borrowing requirements will be met through domestic sources.
Finance officials said the government wants to complete its borrowings as early as possible as it anticipates spreads on emerging markets’ sovereign borrowings to widen with the uncertainty brought about by the war against terrorism.
The International Monetary Fund (IMFO has downgraded its forecast for global growth to 2.6 percent as two of the world’s biggest economies, Japan and the US, are on a slump. Most emerging markets are largely dependent on these two countries for their own growth as the US and Japan consume their products.
Camacho said that by focusing on credit enhancement such as loan guarantees, the Philippine government can complete its financing requirements while minimizing interests costs.