Gov’t lengthens debt payment terms

Debt payment terms of the national government lengthened by almost a year as a result of this month’s buyback and global bond issue, the Department of Finance said.

According to official data, average maturities improved to 12.6 years from 11.7 years before the transaction two weeks ago.

As a result, the Aquino administration managed to lengthen the payment period for its entire debt portfolio by 3.81 years.

Longer payment terms allow the government to channel more funds to public projects, instead of settling debts.

“The picture is not complete yet,” Emilio Neri Jr., lead economist at Bank of the Philippine Islands, cautioned.

“For instance, you may have lengthened maturities, but if the over-all level of debt increased, then what’s the point?” he told The STAR in a phone interview.

Officials could not be immediately reached for comment.

The Philippines, one of Asia’s most aggressive debt issuer, went back to the international credit market through a $2-billion global bond float charged at a record-low rate.

The 25-year dollar-denominated paper fetched a coupon rate of 3.7 percent. A total of $1.5 billion of proceeds were used to settle existing debts ahead of schedule.

Only $500 million was considered new money that went to government coffers to finance the budget deficit.

“Global bonds are foreign debts, so you could also look at the entire composition of the debt and possible impact (of the transaction),” Neri said.

“But the good news is the pricing of global bonds in the market got better, signaling more liquidity,” he added.

Aside from longer maturities, the Aquino government also aimed to lower debt interest and borrowings in foreign currencies to minimize risks during financial volatility.

This, in turn, minimizes risks of higher debt amounts once the peso weakens against other currencies or global interest rate spikes.

Treasury data showed weighted average debt interest hit 5.19 percent last year, down from 5.53 percent in 2013.

Foreign debt, meanwhile, accounted for 34.8 percent of the liability portfolio.

“It will be good to take a look at the entire debt data once it comes out to determine the full impact of the issue,” Neri said.