The government is again tapping the global bond market, seeking at least $500 million to help finance its budget deficit.
The exact size of the benchmark-size offering is still being determined, but reports indicate the government is considering bonds with 10- and 25-year maturities.
The Department of Finance earlier announced plans to issue overseas bonds in the first half of 2024 to cover the budget shortfall. The strategy involves obtaining 75 percent of borrowings domestically and the remaining 25 percent from international sources.
The Philippines ventured into overseas financing last year. They raised $1 billion through their first-ever sukuk (Islamic bond) issuance in November 2023 and $1.26 billion from onshore U.S. dollar-denominated retail bonds in October.
Credit rating agencies assigned investment-grade ratings to the proposed bond offering. S&P Global Ratings gave a ‘BBB+’ rating, while Fitch Ratings assigned a ‘BBB rating’. These ratings reflect the Philippines’ overall creditworthiness.
S&P said the bonds represent direct, general, unconditional, unsecured and unsubordinated obligations of the Philippines (BBB+/Stable/A-2). They rank equally with the sovereign’s other unsecured and unsubordinated debt obligations.
“The rating is in line with Philippines’ ‘BBB’ Long-Term Foreign-Currency Issuer Default Rating [IDR], which has a stable outlook and was last affirmed on Nov. 10, 2023,” Fitch said in a statement.
The government’s budget deficit in 2023 reached P1.512 trillion ($28.2 billion), exceeding its target but lower than the previous year. Analysts expect the deficit to continue shrinking in 2024, reaching 5.5 percent of the gross domestic product compared to 6.2 percent in 2023.
“We forecast the Philippine budget deficit to narrow from 6.2 percent of GDP in 2023 to 5.5 percent in 2024. This narrowing would mark the third consecutive year the budget shortfall shrinks, a reflection of the current administration’s push for fiscal consolidation,” BMI, a Fitch Solutions company, said.
The government’s total debt as of March 2024 stood at P14.93 trillion ($278.7 billion). This is a slight decrease from the previous month due to repayments of domestic debt. Of the total debt, around 31 percent came from external sources, while the remaining 69 percent was domestic debt.
Foreign debt amounted to P4.65 trillion as of end-March 2024, up 1 percent from the February 2024 level.
The increase resulted from the net availment of foreign loans amounting to P44.01 billion, as well as local currency depreciation which added to the valuation of US dollar-denominated debt by P7.05 billion.