The Philippines has pledged to move away from offshore borrowing and to source more of its funding than ever before from local markets.
Cesar Purisima, finance secretary, told Emerging Markets that the Aquino government aims to borrow 73% of its funds in pesos in 2011 and just 27% from foreign markets. This compares to a 67/33 split last year, that was itself a historically unusually heavy weighting to the local market.
The government aims for foreign currency debt to account for just 20% of total national debt in subsequent years. Purisima said this remained the case despite a recent announcement that the Philippines will increase its dollar amount of offshore funding from $2.5 billion to $3.25 billion for 2011, US$2.75 billion of which has already been raised.
“In the first months of the Aquino administration we have floated peso bonds twice: once for 10 years and once for 25, the first in Asia to do so,” Purisima said. “We plan to continue to do that, especially for liability management.” He said that building a long-dated curve in pesos would be crucial to infrastructure development, a vital requirement for the Philippines’ growth.
“Opening up the 25-year market was a move in preparation for infrastructure financing. That will allow project proponents to fund projects in pesos, matching their revenues in costs.”
This relates to the new government’s ambitious programme to launch 10 public-private partnerships for infrastructure in 2011, four of them airports and most of them based around developing the tourism industry, a key Aquino goal. A preliminary list includes 73 priority projects, including education and hospital projects in addition to airports, roads, ports and energy.
Despite the mixed success of privatization and infrastructure development in the Philippines, Purisima said these projects could succeed as PPPs. “We are confident we have made enough changes in our PPP framework to make it attractive.”
He cited a pledge to give approvals on solicited projects within six months, a steady pipeline of new projects, the opening up of long-term local currency borrowing, and improved transparency.
The government faces a challenge of creating growth and development while also bringing down the country’s budget deficit. The government targeted a deficit of 3.9% of GDP last year and delivered 3.74%. This year’s target is 3.2%, equating to Ps300 billion; the aim is to bring the gap down to 2% of GDP by 2013.
To general surprise, the first quarter deficit was Ps26.2 billion compared to a planned P112 billion, which Mr Purisima attributed to improved revenues and well-managed expenditures, though analysts said they reflected the government undershooting on planned disbursements.
Jun Trinidad, economist at Citi, said: “It was certainly much less than programmed, but that’s the best it’s going to get, because in succeeding quarters – especially this one - there is a need for the government to ramp up spending on the infrastructure side.”
Purisima said deficit reduction would not impede vital spending, and stressed the benefits of getting to his 2% target. “When that happens our interest-to-GDP [ratio] will go down, creating more fiscal space for additional investment.”