By Shamim Adam and Clarissa Batino
Feb. 23 (Bloomberg) -- The Philippine government may favor increasing its local-currency debt sales to fund a budget shortfall that will exceed earlier forecasts this year, Finance Secretary Gary Teves said. Bonds fell.
“We will determine how many percent of the additional deficit will be sourced locally, and how many percent will be sourced from foreign sources,” Teves said in an interview yesterday in Phuket, Thailand. “More could be sourced locally.”
The government’s economic team last week widened its 2009 deficit target to as much as 2 percent of gross domestic product as slowing economic growth crimps tax collection and the state spends more to counter faltering exports. Bond yields rose after Treasurer Roberto Tan said today state borrowings will increase “corresponding” to the deficit adjustment.
“The bond market was a bit spooked after the Treasurer said that if the deficit widens, then it follows that they will have to increase borrowing,” said Dave Estacio, head of fixed- income trading at First Metro Investment Corp. in Manila. “The perception of increased supply is making the market cautious.”
Five-year bond yields climbed to their highest level in more than a week and banks demanded higher returns in the government’s 1 p.m. auction of shorter-dated debt today, forcing the Treasury to reject most offers.
More Borrowing
The government may borrow 48 billion pesos ($1 billion) more than planned this year and the budget deficit may widen to between 160 billion and 170 billion pesos, Economic Planning Secretary Ralph Recto said in Manila today. That compares with the previous forecast for a shortfall of 102 billion pesos, or 1.2 percent of GDP.
The Southeast Asian nation will limit the budget shortfall to a level that won’t drive interest rates higher, Budget Secretary Laura Pascua said on Feb. 20.
The final deficit target will be subjected to a “last minute” review before it is released on Feb. 25, Teves said. The shortfall will “definitely be more than 1.2 percent,” the finance secretary said.
There may be a “slight reduction” to the government’s current forecast that the $144 billion economy will expand 3.7 percent to 4.7 percent this year, Recto said. Exports may decline 8 percent to 10 percent in 2009, he said.
Loans from the Asian Development Bank and World Bank may also boost the government’s foreign funding, Teves said. Any additional overseas borrowings could be “a combination of commercial and official development assistance,” he said.
Not Closing Door
The government is seeking an additional $250 million to $300 million in official-development-assistance loans on top of the $1.1 billion budgeted for the year, Tan told reporters today after the Treasury auction. The Philippines is “not closing the door” to additional foreign-currency and peso debt, he said.
About $350 million of loans from the ADB and World Bank originally scheduled for 2008 would be received within the quarter, Tan said last week. Of that, $150 million came in last week, he said today.
“The market is testing the government but we are managing the cash flow effectively,” Tan said today, citing the auction. “We will formulate a revised borrowing strategy” once the government decides on the final deficit target. “We have a healthy cash position,” the Treasurer said.
To contact the reporters on this story: Shamim Adam in Phuket, Thailand at sadam2@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net
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