Gov’t borrowings down 27% in July

MANILA, Philippines - The government’s gross borrowings amounted to P50.305 billion in July, 27.46 percent lower than the P69.35 billion recorded in the same period last year.

This brings total borrowings in the seven-month period ending July to P297.38 billion, down 34.9 percent from a year ago.

The government borrows from the domestic market through the sale of government securities. It also taps borrowings from development institutions such as the Asian Development Bank and World Bank.

Domestic borrowings accounted for the bulk of the total obligations at P272.03 billion, mostly comprising Treasury bonds (P 234.88 billion) and Treasury bills (P37.15 billion). This was 25 percent lower than the P363.05 billion borrowed a year earlier.

Foreign borrowings likewise saw a decline from P93.76 billion to P25.35 billion.

The Aquino Administration has been borrowing significantly less in the past few months given the ample supply of liquidity, especially in the domestic market.

In July alone, the government borrowed P33.8 billion from the domestic market, a sharp decline from P67.54 billion last year. Borrowings from foreign sources, on the other hand, increased to P16.505 billion from only P1.816 billion last year.

The government has been ramping up borrowings from the domestic market to take advantage of the strong interest in the virtually risk-free debt papers.

Investors have turned to peso-denominated instruments to capitalize on the country’s strong economic fundamentals.

The government is also looking at issuing inflation-linked securities for the first time to help lower borrowing costs.

Inflation-linked securities typically have lower coupons than conventional debt because the principal increases annually at the rate of gains in the consumer-price index. These bonds pay a periodic coupon that is equal to the product of the inflation index and the nominal coupon rate.

If the plan materializes, the Philippines will join South Korea, Japan and Thailand which have issued inflation-protected bonds.

For next year, the Philippines is looking to borrow $1 billion to meet its funding needs abroad.

Last year, the Philippines raised $1.5 billion from the issuance of 25-year global bonds, and another $1 billion from 10-year global peso-denominated bonds offered in 2010.