MANILA - The Arroyo government is no longer tapping the international capital market to plug its wider deficit gap next year, the national treasurer announced Monday.

In an interview with reporters, National Treasurer Roberto Tan said, “It seems it is out of the picture. This year there is no plan anymore.”

The Arroyo government is keeping its availment of foreign debts in check. In the State of the Nation Address delivered by President Arroyo last July 27, she highlighted how her administration "exorcised" foreign debt.

In her speech, she said, "Kung meron man tayong malaking kaaway na tinalo, walang iba kundi ang utang, iyong foreign debt (We defeated a big enemy, which is debt, our foreign debt). Past administrations conjured the demon of foreign debt. We exorcised it." (Read: Lower RP debt: Truth or spin?)

Deficit gap

Key revenue collection agencies, especially the tax bureau, have been missing their targets, citing among others the global economic recession. With lesser than expected resources, the Arroyo government tried to cushion the local economy by re-packaging budgets allocated for social services and infrastructure as part of its stimulus package. It also added additional resources into the package.

The result: A deficit gap this year that has been projected to increase from less than P100 billion to P250 billion (3.2% of gross domestic product).

So far, the government has raised $2.25 billion through the issuance of 10-year global-denominated bonds. It first tapped the international capital market last January when it raised $1.5 billion and last July when it sold $750 million worth of global-denominated bonds.

Next year, the budget gap is expected to narrow to P208.4 billion (2.5$ of GDP). To fill the budget gap in 2010, Tan said earlier that tapping the global capital market towards the end of 2009 remained an "option."

Tan said the government may resort to foreign debt sources "if there is a sudden tightening in domestic liquidity and borrowings costs become more expensive".

Domestic borrowings

On Monday, Tan said the government is likely to raise its remaining borrowing requirements in the domestic market through the issuance of treasury bills and treasury bonds.

By shifting its borrowing mix to favor more domestic borrowings, the government reduces its foreign exchange risk.

Next year, domestic borrowings would increase by 14% to P477.19 billion from this year’s P418.59 billion.

Borrowings from foreign creditors through the issuance of global-denominated bonds and more official development assistance loans would drop by 30.1% to P163.09 billion from P234.38 billion.
 
Another option to pre-fund the national government's overseas borrowing requirements ahead of the 2010 synchronized elections was the issuance of Samurai bonds. This involved tapping the Japanese capital market with the Japanese government's assistance.
 
However, Tan explained that the state-run Japan Bank for International Cooperation has yet to respond to its request for a lower guarantee fee. The multinational lender has agreed to guarantee the issuance of up to $1 billion worth of Samurai bonds.