DEPARTMENT OF FINANCE BUREAU OF THE TREASURY · AN INTER-AGENCY EFFORT BUREAU OF THE TREASURY • Mandated to recommend to the President the level of debt service on top of the general

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE

BUREAU OF THE TREASURY

PUBLIC DEBT MANAGEMENTErwin D. Sta. Ana

Deputy Treasurer of the Philippines

THE PHILIPPINE CASE

How does the Philippine National

Government manage its debt?

AN INTER-AGENCY EFFORT


• Mandated to recommend to the President the level of debt service on

top of the general expenditure program, economic and social

development, and national defense

• Major functions of DBCC:

• Assessment of reliability of revenue estimates

• Recommendations of appropriate tax, revenue measures, and

type of borrowings

• Conduct of periodic review and examination of costs



• Mandate: To efficiently and effectively manage

the financial resources of the government by

maximizing revenues from available funds and

minimizing costs of financing whenever possible.

• Objectives

• Meeting the financing requirement of the

National Government

• Development of the domestic capital

markets

• Address the current thin foreign

participation in the local debt market

• Efficient pricing of government and

corporate securities

WHERE WE ARE NOW

Favorable debt metrics from sound fiscal

policy and prudent debt management strategy

DOMESTIC VS. EXTERNAL DEBT


-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2012 2013 2014 2015 2016

Domestic External

• 65% of NG debt portfolio is from domestic sources.

EXTERNAL DEBT BY CURRENCY (2016)


• Majority of external debt is denominated in US dollar, followed by

Japanese yen and Philippine peso .

77.1%

14.0%

1.4% 6.0% 1.5%

US Dollar Japanese Yen Euro Philippine Peso Other Currencies

DEBT BY MATURITY


• Debt portfolio is predominantly composed of long-term debt.

• As of end-2016, 83.7% of the total NG debt are in long-term tenors.

-

750,000

1,500,000

2,250,000

3,000,000

3,750,000

2012 2013 2014 2015 2016

Long-Term Medium-Term Short-Term

83.7%

9.0%

7.3%

Long-Term Medium-Term Short-Term

DEBT-TO-GDP RATIOS


• Both NG debt-to-GDP and GG debt-to-GDP have steadily declined, at 40.6% and 32.6%

as of Q1 2017 respectively.

• Philippine NG debt-to-GDP ratio is well below ASEAN average of 52.9%.

• GG debt-to-GDP is down from a high of 68.0% in 2003.

• Indicator that NG has ample legroom for future borrowings.

20.00%

30.00%

40.00%

50.00%

60.00%

2010 2011 2012 2013 2014 2015 2016 2017

GG Debt-to-GDP NG Debt-to-GDP

CONTINUOUS PATH OF PROGRESS

Landmark transactions made to unlock

innovative sources of financing

TIMELINE: HIGHLIGHTS


First USD bond issuance1990

First JPY bond issuance1996

First EUR bond issuance1999

Regular global bond issuance1999-2008

First global peso note issuance2011

Investment grade rating2013

First one-day switch tender offer2015

Lowest coupon by ROP at 3.7% for 25-year debt2016

DECREASING CDS SPREAD


• The country’s CDS spread currently stands at 113.770, lower than most

ASEAN peers.

• Historical low CDS spread affirms a lower-risk environment for the country,

leading to higher inflows to domestic debt markets .

0

150

300

450

600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

INVESTMENT GRADE RATING


• Starting 2011, the Philippines has undergone 24 positive credit rating actions

from major rating agencies.

• Moody’s, Fitch, and S&P have all maintained the country’s investment grade

rating this year (Moody’s and S&P: stable outlook; Fitch: positive outlook)

28-May-05 10-Oct-06 22-Feb-08 06-Jul-09 18-Nov-10 01-Apr-12 14-Aug-13 27-Dec-14 10-May-16

Fitch Moody's S&P Investment grade

Current credit rating

Moody’s Baa2 stable

S&P: BBB positive

Fitch: BBB- stable

DEBT AND RISK MANAGEMENT

Constant effort to proactively

manage NG debt portfolio

MINIMIZING FX RISK


58.08% 59.59%65.42% 67.50% 68.38% 67.02% 66.32% 67.07% 67.68% 69.16% 70.89% 72.72% 73.84%

41.92% 40.41%34.58% 32.50% 31.62% 32.98% 33.68% 32.93% 32.32% 30.84% 29.11% 27.28% 26.16%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

PHP FXC

IMPROVING BORROWING COSTS


2011 2012 2013 2014 2015 2016

Average Interest Rates

External 5.0% 5.0% 5.1% 4.9% 4.7% 4.54%

Domestic 6.8% 6.5% 5.8% 5.7% 5.5% 5.24%

Total 6.0% 5.9% 5.6% 5.4% 5.2% 4.99%

5.16 5.01 4.96 5.06 4.904.67

4.54

7.096.84

6.47

5.78 5.695.46

5.24

2010 2011 2012 2013 2014 2015 2016

External Domestic

MITIGATING INTEREST RATE RISK


93.39% 92.87% 93.46% 94.28% 93.16% 91.97% 91.36%

6.61% 7.13% 6.54% 5.72% 6.84% 8.03% 8.64%

2010 2011 2012 2013 2014 2015 2016

Fixed Floating

ABILITY TO SERVICE DEBT


31.7%23.6% 22.6% 24.8% 24.4%

20.5% 20.4% 18.8% 16.8% 14.7% 13.8% 13.8% 12.9% 12.8% 12.4% 12.0% 11.7%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

IP/Revenue

Revenues allocated for interest service have declined steadily

29.7%23.3% 21.4% 19.6% 19.3% 17.9% 17.6% 17.2% 16.2% 13.9% 12.0% 11.5% 10.8% 10.7% 10.4% 10.1% 9.9%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

IP/Expenditure

Freeing fiscal space for productive spending

MATURITIES HAVE LENGTHENED


2012 2013 2014 2015 2016 Jul 2017

Average Residual Maturity (Years)

External 10.96 10.89 11.13 11.86 12.17 12.35

Domestic 10.44 9.57 9.20 9.16 8.73 8.21

Total 10.87 10.03 9.90 10.04 10.05 10.02

43.65%31.53%

26.27%

22.33%

30.08%

46.15%

2010 2016

11 yearsonwards

6 to 10 years

Maturing inthe next 5years

WORKING TOWARD SUSTAINABILITY

Ensuring that NG debt portfolio

is sustainable in the long-run

TAX REFORM AND DEBT SUSTAINABILITY


36.00%

38.00%

40.00%

42.00%

44.00%

2016 2017 2018 2019 2020 2021 2022

Approved House Bill (HB 5636 with additional revenue of P133.8B)/1

Without CTRP /1

BORROWING PROGRAM


Particulars, in Million Pesos Actual 2016 Program 2017 Actual 1H 2017 Program 2018

GROSS FOREIGN BORROWINGS 149,253 182,770 139,209 176,269

Program Loans 35,598 42,470 18,011 84,214

Project Loans 18,789 30,300 21,632 41,055

Bonds and Other Inflows 95,136 110,000 99,566 51,000

Less: Amortization 173,636 139,600 111,054 61,923

NET FOREIGN BORROWINGS (24,113) 43,170 28,155 114,346

GROSS DOMESTIC BORROWINGS 357,497 544,969 366,551 711,958

Treasury Bills 23,501 54,969 29,879 71,958

Gross Flotation 215,520 327,332 147,332 500,000

Maturities 192,019 272,363 117,453 428,042

Fixed Rate Treasury Bonds 333,996 490,000 154,820 640,000

Less: Net Amortization 2,445 3,359 870 5,030

NET DOMESTIC BORROWINGS 355,052 541,610 365,681 706,928

NET FINANCING 330,939 584,780 393,836 821,274

GROSS BORROWINGS 507,020 727,739 505,760 888,227

FINANCING MIX

(DOMESTIC : EXTERNAL)71: 29 75 : 25 78 : 22 80 : 20

CAPITAL MARKET DEVELOPMENT


Repo

Primary Dealer System

nRoss

Benchmark Reevaluation

Alternative Financing

Asset Registry

CAPITAL MARKET DEVELOPMENT


CONSOLIDATION OF ISSUANCE

•Reduction in number of outstanding ISINs

•Increased trading volume and liquidity

•Reduced yield curve distortion

INTRODUCTION OF INNOVATIVE INSTRUMENTS

• Diversify investor base and provide alternative instruments to investors

PRIMARY DEALERSHIP PROGRAM

•Enhance the primary market

•Clear obligations and privileges of GSEDs

•Performance-based criteria

•Obligations to market-make

REPO PROGRAM

•Allow GS Dealers to market make

•Improve liquidity in the GS market and stabilize the yield curve

•Operations Manual and Standard Procedure for Repo Agreement

•Provide two-way quotes and encourage price discovery

THANK YOU!

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE


PUBLIC DEBT MANAGEMENTErwin D. Sta. Ana

Deputy Treasurer of the Philippines

Documents

DEPARTMENT OF FINANCE BUREAU OF THE TREASURY · AN INTER-AGENCY EFFORT BUREAU OF THE TREASURY • Mandated to recommend to the President the level of debt service on top of the general