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Adopting a Sound Debt Management Strategy : Domestic Against Foreign Sources* by ROBERTO B. TAN

Adopting a Sound Debt Management Strategy : Domestic Against Foreign Sources* by ROBERTO B. TAN Treasurer of the Philippines 13 October 2009 * Presentation Before the 2009 AGAP Convention, Bacolod City. Presentation Outline. Why does the NG Incur Debt ?

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Adopting a Sound Debt Management Strategy : Domestic Against Foreign Sources* by ROBERTO B. TAN

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  1. Adopting a Sound Debt Management Strategy : Domestic Against Foreign Sources* by ROBERTO B. TAN Treasurer of the Philippines 13 October 2009 * Presentation Before the 2009 AGAP Convention, Bacolod City Bureau of the Treasury

  2. Presentation Outline • Why does the NG Incur Debt ? • What is NG’s Rationale in Incurring Debt ? • What does NG Borrowing Achieve? • BTr Priorities in Debt Management • Results of Debt Management Efforts • Conclusion Bureau of the Treasury

  3. Why does the NG Incur Debt ? • It allows the government to consume and/or invest today more than it’s current income or revenues; • To finance budgetary deficit and service maturing obligations of the government

  4. What is NG’s Rationale in Incurring Debt ? • To allow greater investment to increase production capacity and potential income; • To maintain or minimize erosion of social and economic welfare in times of revenue constraints; • Government’s debt paper serves as investment instrument for the private sector.

  5. What does the Government Borrowing Achieve ? • Liquidity • ensure that funds are available when budget disbursements are made; • To achieve liquidity : • - consider the depth of the market; • - issue different types of instruments; • - generate forex bonds in 3-5 days execution

  6. What does the Government Borrowing Achieve ? • Deficit and Off-Budget Financing • bridges gap between revenues and expenditures and off-budget transactions • Debt Refinancing • pay maturing principal obligations/payments

  7. BTr Priorities in Debt Management • Ensure Liquidity • - adequate cash balance to cover projected operational budget disbursements and debt service for the programmed period; • - undertake borrowing operations based on programmed requirement and build reserves for future maturing obligations.

  8. BTr Priorities in Debt Management • Minimize Borrowing Cost • I. Domestic Interest Rates • */ Average for Jan-Sept

  9. Yield Curve

  10. BTr Priorities in Debt Management • Minimize Borrowing Cost • II. Foreign Interest Rates • Maximize Duration • Average Maturity Profile – • Foreign : 10-11 years (have issued 25 yr bonds) • Domestic : 4-5 years (have issued 20 yr bonds)

  11. BTr Priorities in Debt Management • Ensure Liquidity • Avoid Bunching of Maturities • Domestic debt exchange program that would strengthen the government securities’ market and lessen the country’s dependence on foreign borrowings. • Manage Currency Risk • - borrow local currency to finance budgetary requirements and avoid forex risk • - borrow foreign to service foreign obligations • - looking into/exploring diversification strategies

  12. BTr Priorities in Debt Management • Diversify Sources of Funds • -Develop the retail investor base (offer more RTBs & enhance the Small Investor’s Program) • - tapping other foreign sources of funding i.e., yen, euro • Develop longer term and innovative/hedging financial instruments • Deepen local capital market • - BTr’s developmental role as the largest issuer and benchmark for domestic interest rate • - enables quick and large funds generation

  13. Results of Debt Management Strategies • Debt Ratios (In %) • Borrowing Mix (In %)

  14. Financial Instruments Developed • Treasury Bills • Treasury Bonds • Retail Treasury Bonds • Peso-Dollar Swaps • Dollar Linked Bonds • Zeros • Warrants (exempts holders from Basel II, reserve requirements) • Exchange Bonds

  15. Where are we headed ? • NG will continue to rely more on borrowing from domestic sources, financing mix for 2010 will be 28% foreign and 72% domestic ; • In 2010, premised on a more positive global outlook and much improved national growth prospects, NG intends to raise P1,335.6 B in revenues; • Programmed deficit of 2.8% to GDP will now start a downward trend towards fiscal consolidation for a balanced budget by 2013

  16. Where are we headed ? • NG is expected to be within its deficit target of P250 B in 2009 and P233 B in 2010 or 2.8% of GDP ;

  17. Conclusion • What is essential to sustain sound debt management ? • Sound macroeconomic management • Meeting fiscal targets • Pursue fiscal consolidation program to attain balanced budget by 2013 • Consequently, sovereign credit rating improves enabling efficient access and securing lower cost of funds

  18. Thank you ! Bureau of the Treasury

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