Gov't mulls dollar bond issuance

MANILA, Philippines - The government is studying the possibility of issuing dollar bonds in the country, noting that such undertaking will be both beneficial for the state and the Bangko Sentral ng Pilipinas (BSP), a finance official said yesterday.

 “We are still studying it. There are still many things being sort out. After those are finished, that is the time we will ask BSP for approval,” Finance Undersecretary Rosalia de Leon told reporters in a teleconference.

It still “depends” if such will be part of the remaining $750 million foreign commercial borrowing for the year, which De Leon also said the government “may no longer issue.”

“We have bought dollars with the BSP for our debt service requirements. Certainly, we can buy dollars from them. But it still depends,” she said, without elaborating.

The Aquino administration has programmed a total of P704.26 billion worth of borrowings for the year to finance a budget deficit expected to hit P279.1 billion. Of the total, 75 percent (P529.493 billion) will be denominated in pesos, while the remaining 25 percent (P174.767 billion) will come abroad.

A dollar issuance, De Leon explained, would not only reduce the government’s foreign exchange risk, but would also help tame down the strength of the peso, which has appreciated against the dollar by 4.23 percent from January to August this year.

The government has not issued dollar bonds onshore. Its last dollar bonds offering was held last January when it raised $1.5 billion in 25-year papers abroad.

De Leon stressed there is a dollar market in the country, pointing to the $30.1 billion worth of resources of foreign currency deposit units held by universal and commercial banks as of last year.

By issuing dollar bonds onshore, demand for the US currency will increase, hence, appreciating its value against the peso. A strong peso, while making imports more affordable, also trims export earnings and remittances from overseas Filipinos.

In contrast, borrowing dollars abroad and later on exchanging them with pesos to finance government projects would increase demand for the local currency and thus, strengthen its value. 

BSP Governor Amando Tetangco Jr. told reporters the central bank has “advised the government to review its borrowing mix” and borrow more in pesos.

“Right now, I think they are moving in that direction...There is this coordination between the government and the BSP, between the fiscal and the monetary (authorities) and we have been continuing this,” Tetangco said on the sidelines of the Philippine International Banking Convention in Makati.

“They have purchased the dollars from the BSP and it is likely that there will be further purchases by the national government from the BSP to service their foreign obligations in the short term,” he added.

Dollars form part of the country’s gross international reserves (GIR), which hit a record-high of $79.3 billion as of July. This already exceeded BSP’s $77.5-$78 billion forecast for the year. GIR data for August is scheduled to be released today.