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Government may halve global bond offering to $750 million in 2015

The Philippine government may offer about $750 million in global bonds in 2015, half the overseas debt it sold this year as it taps increasing domestic liquidity.

Of the P700.8 billion  ($16 billion) borrowing planned for next year, 86 percent, or P605.1 billion, will probably be raised from the local market and the remaining 95.7 billion pesos from overseas debt, National Treasurer Rosalia de Leon said in a mobile-phone message reply to questions yesterday. The overseas debt will include official development loans

The Philippines sold $1.5 billion of 10-year dollar- denominated bonds in January, returning to the global debt market after a one-year absence in 2013 when it took advantage of record-low interest rates and flush liquidity to help curb robust inflows. Money supply has expanded more than 30 percent since July and the government had its biggest budget surplus in 20 years in April, signaling less funding pressure.

“There is ample domestic liquidity that can continue to absorb the borrowings of the government,” said Rey Montalbo, head of the Treasury group of First Metro Investment Corp. in Manila. “Local interest rates will remain relatively low. Any tightening by the central bank will probably be gradual and calibrated.”

Bangko Sentral ng Pilipinas raised the rate it pays on special deposit accounts to 2.25 percent on June 19, from 2 percent, after increasing the reserve requirement ratio of local banks by a total of two percentage points at its March and May meetings, to 20 percent. While the benchmark overnight borrowing rate was kept at a record low 3.5 percent, Governor Amando M. Tetangco Jr. said June 20 that the central bank has a “tightening bias.”

The government’s economic team is discussing next year’s funding plan as part of the 2015 budget that President Benigno Aquino will ask lawmakers to approve after his annual address to Congress in July. The team, known as the Development Budget Coordination Committee, met on June 20 and maintained growth and fiscal targets for this year and next, Economic Planning Secretary Arsenio Balisacan said.

The government set a borrowing plan of P730 billion for 2014, of which P620 billion would be from the local market, according to Department of Finance data released in December. That compares with P735 billion in 2013. The external funding plan for this year is $2.5 billion, including development loans, De Leon said at that time.

The nation posted a budget surplus of 80.9 billion pesos in April, the most since at least June, 1994 when Bloomberg started compiling the data. Revenue collection in April rose 18 percent and spending fell 6 percent, the government reported June 4.

The Bureau of Treasury may reduce next quarter’s borrowing from the domestic market from the P135 billion programmed for this quarter, Deputy Treasurer Sharon Almanza told reporters June 20. The third-quarter auction plan will be released before month-end.

“We’re sitting on a mountain of cash,” De Leon said June 17, citing the government’s cash and debt management, enabling it to spend less on interest payments.

The Philippines won investment grade ratings from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings last year. On May 8, S&P raised the nation’s assessment to BBB from BBB-, citing Aquino’s efforts to improve the economy and governance.

The government kept its economic growth target of 6.5 percent to 7.5 percent this year and 7 percent to 8 percent next year, Balisacan said June 20. The DBCC used an exchange rate assumption for the peso of 42 to 45 per dollar until 2016, he said.

The $250-billion economy expanded 5.7 percent in the three months through March, the slowest pace in nine quarters. The peso has risen 1.3 percent this year.