Interest on gov’t debt sustains downtrend

Interest charged on national government debt continued its decline by the end of October, but expectations are high the trend could reverse soon with US yields already up.

From January to October, the debt pile fetched a weighted average rate of 4.96 percent, slightly down from 4.97 percent in the first nine months, data from the Bureau of the Treasury showed.

Broken down, rates on both local and foreign liabilities dipped, although the latter posted a faster decline.

The decline happened two months before the US Federal Reserve finally decided to raise rates again, its second in

a decade, with those from emerging markets like the Philippines expected to follow suit.

But National Treasurer Roberto Tan said there was nothing to worry about. “Domestic rates have increased due to this anticipated positive Fed policy rate action so the market has adjusted somewhat,” he said in a text message.

“We hope the market settles without further material adjustment,” Tan added.

Rising rates do not bode well for the government’s budget program, which aims to lower debt interest payment costs to ensure funding for infrastructure and social programs.

As of October though, external liabilities fetched a lower rate of 4.46 percent than the 4.48 percent in the first nine months, data showed.

Broken down, foreign-denominated securities fetched a lower rate of 6.28 percent, which offset the rise in external loans to 1.59 percent.

Meanwhile, local obligations also recorded a lower yield of 5.24 compared to 5.25 percent during the 10-month period.

Shorter- termed Treasury bills dipped three percentage points to 1.57 percent, while those for Treasury bonds were steady at 5.54 percent.

Interest rates decreased even as the peso weakened against the dollar to an average of 48.485 from 48.482.

A weaker peso tends to increase the value of foreign debts.

“We will pursue our fiscal program for 2017 which incorporates measures that addresses expected market movements that can affect our borrowing plan,” Tan said, without going into specifics.

For next year, the government is programmed to borrow P631.29 billion, down 9.22 percent year-on-year.

Borrowings will partly finance the budget deficit, which is programmed to widen to P478.1 billion. The balance will be used to settle maturing obligations.

“Our macroeconomic and fiscal fundamentals are robust enough to withstand global headwinds,” Tan said.