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THE Arroyo administration has sought Bangko Sentral ng Pilipinas (BSP) approval to raise more funds abroad through the issuance of global bonds, a state source said.

Also called ROPs, or Republic of the Philippines debt papers, global bonds pertain to dollar-denominated state borrowings from the international market.

Any plan by a government agency or a private-sector entity to borrow from abroad requires the BSP’s consent since repayment of the liability would entail dipping into the country’s foreign exchange reserves.

The source said the government applied for a permit to issue $1 billion in ROPs, which would be an alternative to an earlier plan to borrow from the Japanese bond market.

President Gloria Arroyo this month went to Japan, where she secured Tokyo’s commitment to guarantee her government’s plan to issue as much as $1.5 billion in so-called Samurai bonds over the next two years. The Japanese guarantee of as much as 95 percent of the total bond issue would make the IOUs more saleable.

Finance Secretary Margarito Teves, however, had said the Samurai bond offering doesn’t preclude raising more money from the sale of ROPs.

A Samurai bond is a yen-denominated debt paper issued in Japan by a foreign borrower. The Philippines last tapped the Samurai bond market in 2000.

The government is hard-pressed to jack up its borrowings, after economic managers increased the country’s budget deficit to P250 billion, or 3.2 percent of gross domestic product (GDP), from an earlier target of P199 billion, or 2.5 percent of GDP.

An indicator of economic performance, GDP measures the amount of final goods and services produced in a country, while the deficit-to-GDP ratio is a key measure of how long a government can sustain revenue shortfalls.

The higher deficit goal was announced after the Philippines registered a sharply lower first-quarter GDP growth figure of 0.4 percent, from 3.9 percent in the same three-month period last year.

At end-May, the government reported that its deficit ballooned by more than 556 percent as expenditures outpaced revenues by P11.4 billion last month, a reversal from the P7-billion surplus in the same month last year.

Before the Samurai bond plan was disclosed, the government had failed to borrow from the domestic market through its weekly auction of Treasury bills and bonds.

Terms of Samurai bond

The source said the Department of Finance is discussing the terms and conditions of the Samurai bond issuance, adding that officials are looking into whether the guarantee fee from the Japan Bank for International Cooperation (JBIC) would be cheaper or more expensive than ROPs.

“Savings could be less than 20 basis points [so] it makes more sense to go directly to the commercial market and borrow,” the source said.

“They are weighing options,” source added.

The pricing for the Samurai bonds will be finalized next month, with the float expected to start in September, Teves had said.

Debt servicing inches up

In the first five months this year, the government’s debt servicing—which includes interest and principal payments—inched up 3.71 percent to P343.84 billion from P331.53 billion in the same period last year.

The bulk of the debt servicing this year consisted of principal payments worth P209.85 billion, rising 5.7 percent year-on-year from P198.53 billion previously. Interest payments went up 0.74 percent to P134 billion from P133 billion last year.

In May alone, debt servicing, however, fell 4.8 percent to P23.65 billion from P24.84 billion the previous year.

The Finance department earlier said the government is setting aside P700.6 billion for debt payments this year, higher than the P681.5 billion programmed earlier. The new estimate was also higher than last year’s P636 billion.

Debt servicing this year is equivalent to 8.3 percent of GDP.