"Before the elections, I can safely rule out that we won’t be borrowing anymore from the international market," Finance Undersecretary Eric Recto said. "We’re comfortable now but of course we cannot predict what opportunities could arise. We will continue to borrow intelligently."
The DOF official said the National Government (NG) has completed its planned foreign borrowing this year based on its 70-30 borrowing mix, where it intended to raise only 30 percent of its funding requirements from the foreign market.
However, Recto said the borrowing mix was not cast in stone, adding that the NG could still return to the foreign market depending on opportunities that could emerge in the remainder of the year.
Recto said the 70-30 mix is flexible and the NG could borrow more from foreign sources after the elections.
The NG has just completed its $200-million zero-coupon bond issue intended to generate funds for its budget deficit and maturing obligations, taking advantage of the market ahead of the mounting pressure towards the May polls.
This developed as the Bangko Sentral ng Pilipinas (BSP) announced that the country’s outstanding external debt increased by seven percent to $57.4 billion at end-December 2003 compared to the level a year earlier.
BSP Governor Rafael Buenaventura said accounts with medium to long-term maturities accounted for 89.2 percent of the total burden and the weighted average maturity was 17.2 years.
Buenaventura said the increase in the country’s foreign debt was due to the incremental increase in government borrowing, in addition to the weakening of the dollar against other major currencies which raised the dollar equivalent of loans that were dominated in other currencies.
While the total foreign debt continued to increase the NG also continued to borrow to finance its deficit and repay some of its maturing obligations.
The zero-coupon bonds issued last month were priced at 3.95 percent yield, with underwriters led by the Hongkong and Shanghai Banking Corp.(HSBC).
The new borrowing would supplement earlier borrowings of the administration as it scampers to meet its funding requirements before the market goes haywire over the May elections.
Sources earlier said the market was jittery over the elections but the NG was able to get a price that it considered "acceptable under the circumstances."
The zero-coupon bond issuance followed the float of some $500 million worth of 11-year global bonds in February which were priced to yield 19 percent and carry a coupon rate of 8.875 percent.
The earlier offer was handled by joint lead underwriters Union Bank of Switzerland (UBS), HSBC and Credit Suisse First Boston. The bonds were earlier rated by Fitch Ratings at "BB", in line with the country’s long-term foreign currency rating.
The price on the bonds was estimated at 600 basis points more than 11-year US Treasuries, however, making it rather expensive compared to the government’s previous borrowings.
The zero coupon bonds, on the other hand, were issued just in time after the DOF released the February budget deficit figures which showed that the NG was still ahead of its deficit target for the first quarter of 2004.
The higher the budget deficit, the more the government would have to borrow to finance its spending and its debt service costs.
In 2003, the government’s outstanding debt surged by almost 20 percent as the administration struggled to finance its deficit and its maturing obligations amid falling peso-dollar exchange rates.