The Philippines may shun the global bond market this year as record-low interest rates at home and flush money supply supports increased domestic borrowing, Treasurer Rosalia de Leon said.
“If we see again that we have a good market reception in the domestic auction like last year we can increase the size of our domestic borrowing,” De Leon said. “As much as possible we would like to fund more domestically and if 100 percent is possible, why not? But, so far, the baseline” 80 percent will borrowed locally and the rest will be raised overseas.
The Asian nation plans to borrow a total of 730 billion pesos ($17.9 billion) this year, De Leon said in an interview in the Philippine southern city of Samal. The government may also repurchase foreign-denominated debt for a third straight year as part of its liability management, she said.
The Philippines is boosting domestic borrowing to help curb capital inflows that have made the peso the best-performing currency in Asia and among emerging markets in the past 12 months. Bangko Sentral ng Pilipinas considers inflows as among its biggest challenges this year, and Finance Secretary Cesar Purisima said last month that the government is “closely coordinating” with the monetary authority on borrowing.
The $225 billion Asian economy is reducing its budget deficit, extending debt maturity and cutting foreign-currency risks in pursuit of an investment-grade credit rating. President Benigno Aquino’s administration has conducted bond exchanges, debt repurchases and peso-bond sales to overseas investors since starting a six-year term in June 2010.
The Philippines raised domestically 84 percent of its borrowing last year, higher than its 75 percent target as it was more “favorable” to borrow from the local market, De Leon said. The government may also swap peso-denominated debts to pay its foreign currency-denominated borrowings, she said.
The Philippines repurchased $1.2 billion in foreign-currency bonds in November for almost $1.5 billion to cut annual interest costs by $53 million, De Leon has said. In 2011, the Philippines spent $1.7 billion buying back $1.3 billion of debt.
The nation held a debt swap in September 2010, exchanging shorter-maturity dollar securities with longer-term bonds denominated in the U.S. currency. In December that year, the Philippines issued almost 200 billion pesos in new 10- and 25-year notes in a swap. It conducted another bond exchange in July 2011.
“We will continue to be opportunistic,” De Leon said yesterday. “If there are compelling advantages for us to do similar transactions, why not?”