NG to continue relying heavily on domestic sources for funds

Despite a contrary view aired by the Bangko Sentral ng Pilipinas (BSP), the Department of Finance said there will be no drastic shift in its borrowing mix for 2005.

The DOF said its financing program for 2005 would require the National Government to raise at least P214 billion in net financing, down from P228.6 billion in 2004 and P286.8 billion in 2003.

The DOF said 22 percent of this amount would be raised from the foreign credit market while 78 percent would come from domestic sources.

The DOF’s 2005 borrowing mix shows a slight adjustment from the 80-20 mix in 2004 where the bulk is to come from domestic borrowings through Treasury bills, Treasury bonds and cash management bills.

The DOF’s borrowing mix is expected to draw flak from the BSP which has been urging the Development Budget Coordinating Committee (DBCC) to adjust the mix closer to the 2003 level of 45-percent foreign and 55-percent domestic.

This year, the BSP sounded the alarms that the National Government’s borrowing program would lead to a $2-billion foreign exchange shortfall.

Such a shortfall, according to the BSP, would have to come either from borrowing or from the spot market. If the BSP is forced to get foreign currency from the market, the peso would suffer even more against the pressure to depreciate.

The Arroyo administration completed recently its foreign borrowing program including the requirements of the National Power Corp. Now, it has begun looking at possibilities for pre-funding its 2005 requirements through more foreign borrowing.

The possibility of an advance foray into the foreign market, however, would not translate into a shift in the borrowing mix and this is making the BSP nervous over the prospect of being left to generate the foreign exchange needed for the repayment of debts and to keep the international reserves at comfortable levels.

DBCC papers indicated that the National Government had a total funding gap of about $1.6 to $2 billion that was not covered by the borrowing program.

For 2005, the picture could still change when the National Government finally books the Napocor debt that it plans to assume, estimated at be over P560 billion.

Including Napocor, the DOF estimated that the fiscal position will not balance until around 2015. By 2010 at the end of the Arroyo administration, the government would still be in deficit position, indicating higher borrowing requirements.

Beginning 2005 when the government officially assumes NPC’s obligations amounting to over P560 billion, the deficit would skyrocket back to P221.2 billion.

The downward trajectory would be much slower, going down to P207.3 billion by 2006 and P175.8 billion by 2007. The DOF said the deficit would drop to P132.2 billion in 2008 and finally below the P100-billion mark by 2009 when the deficit is projected to reach only P75.6 billion.

By the end of the Arroyo term, there will still be a P66.3-billion deficit, all of which will come from Napocor’s P66.3-billion funding requirement.