Makati City, May 3, 2003 -- The Arroyo administration's deficit financing 
on the budget is finally catching up with itself, worrying investors, as 
the country's debt climbed 19 percent in February compared to a year 
earlier to P2.906 trillion, which according to state data was mainly due to 
government borrowings to pay for maturing debts and to fund the budget 

Debt payments now account for more than 35 percent of the government's 
budgeted spending and the country's debt to gross domestic product (GDP) 
ratio of around 65 percent is far higher than in most neighboring 
countries, worrying economists and investors.

The debt is equivalent to P36,325 per head of the 80 million population.

Government borrowings to refinance maturing debt and to fund the budget 
deficit, along with a weak exchange rate, caused the spike in February's 
debt, which was up from P2.88 trillion in January.

Foreign debt rose 24 percent from a year earlier to P1.445 trillion while 
domestic debt grew 14.8 percent to P1.461 trillion.

Contingent liabilities, largely government guarantees for borrowings by 
state firms, grew 24.6 percent from a year earlier to P609 billion.

Much of the debt is due to fund-raising for sizeable budget deficits 
incurred over nine of the past 13 years. Weak tax income due to 
inefficiencies and corruption in the collection system have been blamed for 
the fiscal problems.

This year the government is hoping to pin the deficit to within 4.6 to 4.7 
percent of GDP, or around P202 billion from P212.6 billion last year.

It missed its first-quarter deficit target but said an improving tax 
collection trend and reforms at the Bureau of Internal Revenue should help 
it meet its full-year goal.

National debt includes the state's local and foreign borrowings and not the 
liabilities of the private sector.

The International monetary Fund (IMF) recently expressed concern about the 
rising contingent liabilities and the debt to GDP ratio.

National Treasurer Sergio Edeza said the government plans to source 56 
percent of its funding requirements from domestic sources and the rest from 
the international market.
He said recently the government would likely float about $300 million in 
yen-denominated bonds to cover its 2003 budget shortfall.

"We will explore the possibility of going to the yen market with a 
guarantee (from Japan). It's not yet sure, probably about $300 million 
worth," he said.

The government raised 50 billion yen, or $423 million, in December 2001 
through an issue of 10-year Japanese bonds via a private placement 
partially guaranteed by state-owned Nippon Export and Investment Insurance 
Co. of Japan (NEXI).

"We are working with them now, asking whether we could continue to do that 
through a yen borrowing sometime in the latter part of the year," Edeza said.

The Philippines needs to raise around $900 million more from the overseas 
market to complete its programmed $2.4 billion external borrowing this year.

The government needs to fund an expected budget deficit of P202 billion 
($3.82 billion) this year, or about 4.6 to 4.7 percent of gross domestic 
product (GDP). The country overshot deficit targets three times in 2002 to 
end the year with a fiscal shortfall of P212.68 billion, or 5.6 percent of 

"We are not borrowing (overseas) yet because we are allowing Napocor to 
borrow first the $1.2 billion that it requires for the whole year before we 
borrow sometime in end-May or early June to complete all our dollar 
requirements," Edeza said.

"The timing will only be right if we see Napocor substantially completing 
its financing requirements."

Reacting to a recent report that total government borrowings might reach as 
much as P230 billion this year against a target of 198.50 billion pesos, 
Edeza said the government was preparing for any contingencies, particularly 
if it overshoots its 2003 deficit target. He said there were no projections 
at the moment that the excess shortfall was likely.

"The Treasury would have to forecast a higher number because we have to 
borrow ahead, we don't wait for the deficit to come and then borrow," he said.

Edeza added if there was another blow out in the deficit this year, Manila 
would tap the domestic market for funds.

Despite withdrawing issues of government paper worth about P50 billion so 
far this year due to high bids from the market, Edeza said the Treasury has 
been able to raise about P51 billion from over-the-counter sales to 
tax-exempt government entities.

The government's cash position was at P44 billion, Edeza said. (Tribune)

Reported by: Sol Jose Vanzi

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