RP hikes local borrowing to plug wider budget gap

MANILA, Philippines - The Philippines will increase its local borrowing, allowing government to plug a wide deficit gap resulting from increased spending for infrastructure and social services. This was announced by the Bureau of the Treasury in a memorandum it issued to government securities eligible dealers (GSEDs). The Treasury will borrow 13.58 percent more in the second quarter to raise P104.5 billion from the sale of short-term Treasury bills and long-term Treasury bonds. During the first quarter, the government tried to raise P92 billion based on an earlier memorandum to GSEDs. It is offering more benchmark 91-day T-bill papers, raising its bi-weekly offering of government securities that mature in less than a year by P500 million to generate P7.5 billion every auction from P7 billion previously. At the same time, the Treasury also reduced the offering of T-bonds – or government securities that mature beyond one year – by P500 million. Instead of offering P8.5 billion worth of T-bonds every auction, the government will sell P8 billion worth of government securities that will mature in three, five, 10 and 20 years. The interagency Development and Budget Coordinating Committee (DBCC) said it will be keeping its fiscal gap at P177.2 billion, estimated to be 2.2 percent of the country’s gross domestic product (GDP). Next: Govt debunks expectations that deficit may balloon further Govt debunks expectations that deficit may balloon further It is also debunking an earlier pronouncement of the National Economic and Development Authority (NEDA) that the government may incur a higher budget deficit worth P257 billion. The country's economic managers have already increased the fiscal deficit to P177.2 billion from the previously programmed P102 billion, convinced that more should be spent to curb effects of the global financial crisis. Last month, Finance Secretary Margarito B. Teves said the fiscal program was formulated to support the continued improvement in tax effort and sustain the reduction in debt burden amid tight financing conditions. Meanwhile, in a research note, the Development Bank of Singapore (DBS) said government bonds have come under selling pressure this week after Socio-Economic Planning Secretary Ralph Recto said the deficit may swell to as much as P257 billion this year due the collapse in trade. “The estimate is 45 percent higher than the earlier estimate of P177 billion, meaning that the government might have to boost domestic bond sales significantly to fund the shortfall," DBS said. As the fiscal gap will widen this year, the bank said 10-year yields should "remain under upward pressure in the coming months even if there is good demand for short-dated debt out of the banking system." "It is likely that the neutral steepening trend continues as liquidity in the banking system and bond supply are both likely to expand," it added. Expecting more rate cuts from the Monetary Board, DBS said these would "create room for short-dated bond yields to fall further." "With two-year yields likely to fall to fresh record lows in second quarter and 10-year yields likely to rise toward their longer-term average level of 12 percent, the curve is likely to steepen further," it added. - GMANews.TV