Gov’t can meet financing needs despite market volatility, treasurer says

THE NATIONAL Government (NG) is confident that it can secure its borrowing needs for this year to help fund its spending plan, even with interest rates surging and risk sentiment souring as the protracted Middle East war fuels uncertainty.

“The NG will be able to raise our borrowing program for the year as we can source both from onshore and external,” National Treasurer Sharon P. Almanza said in a Viber message.

“For external, we still have access to official development assistance in addition to our global bond issuance. We have other funding options if there’s a need to adjust our financing mix.”

In the first four months of the year, NG gross borrowings were almost flat at P1.134 trillion from P1.135 trillion in the same period a year earlier. This represented 42.28% of the P2.68-trillion gross borrowing program under the Budget of Expenditures and Sources of Financing 2026.

Domestic debt, which accounted for 75.26% of the total, rose by 2.14% to P853.37 billion.

Meanwhile, external borrowings in the first four months dropped by 6.41% to P280.47 billion.

The government in January raised $2.75 billion from a triple-tranche dollar bond issuance, or 5.5-year bonds at a coupon rate of 4.25%, $1.5 billion from the 10-year papers at a coupon rate of 5%, and $750 million from the 25-year papers at a 5.75% coupon.

Ms. Almanza earlier said that the government is still looking at tapping the foreign market again within the year to raise the $2.5 billion remaining in its offshore commercial borrowing program.

Analysts said rising yields and a weakening peso could force the government to tweak its borrowing mix to help bring down debt costs, especially as it needs to manage its finances more carefully amid the economic fallout from the prolonged Middle East conflict.

“Rising interest rates are making government borrowing more expensive, but not impossible. Demand for government securities (GS) is still there — investors are participating. But they’re asking for higher yields. So, the issue is cost, not access, and the government can still meet its borrowing targets, albeit at a premium,” Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message. “(F)unding remains intact, but the environment is tighter, more costly, and requires more disciplined execution from policymakers.”

“During periods of higher rates, the government may opt to just issue shorter dated bonds so that they won’t be locked in for a longer term,” Sun Life Investment Management and Trust Corp. President Michael Gerard D. Enriquez said in a Viber message. “They can also opt to look into borrowing other currencies… since the peso’s weakening will bring up their borrowing costs.”

China Banking Corp. Chief Economist Domini S. Velasquez also said that the government’s borrowing strategy could shift slightly towards external financing amid “relatively cheaper funding conditions overseas, creating room for additional offshore issuances such as Republic of the Philippines bonds, i.e. US dollar bonds.”

She noted that yields in the Philippines have climbed more sharply compared to other Southeast Asian markets since the Iran war started due to heightened inflation risks that could lead to further monetary tightening.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said rising rates and the ongoing market volatility makes borrowing more expensive as investors will ask for higher yields to compensate for inflation, peso weakness, and global uncertainty.

“Demand for GS will still be there, but investors may prefer shorter tenors or higher coupons, making borrowing costlier,” he said via Viber.

“Government is unlikely to miss its borrowing target, but it may need to adjust the timing, tenor, and mix of financing. This could mean relying more on domestic borrowing if external conditions are unfavorable, or delaying dollar bond issuances until market conditions improve…  A dollar bond remains possible, but pricing will be more expensive.”

Turbulent market conditions amid the war would further squeeze the Philippines’ cash position, the analysts said. 

“(H)igher debt servicing could limit fiscal space, meaning less room for crisis response or new spending unless priorities are adjusted. That’s why we’ll likely see a more tactical approach — shifting the borrowing mix, leaning more on domestic sources, and timing any dollar issuance carefully given high US rates and a weaker peso,” Mr. Ravelas said.

“Higher rates constrain crisis response because more fiscal space goes to debt servicing instead of relief, infrastructure, or social protection. This makes targeted and efficient spending more important,” Mr. Rivera said.

They added that bond yields may stay elevated but are unlikely to breach double-digit territory, with the Bangko Sentral ng Pilipinas moving to curb inflation risks by tightening its policy stance.

“We think GS yields may be nearing their peak, as markets have already priced in much of the negative news surrounding the Philippines. Any improvement in sentiment from the Iran conflict could trigger some correction in yields,” Ms. Velasquez said.

“As soon as the war is resolved, we could see some correction in yields. Any positive developments surrounding the conflict may already lead to a modest pullback in rates. However, given still-elevated inflation for most of the year, we expect a more substantial decline in yields only toward yearend. This will likely coincide with a gradual shift toward a monetary easing bias heading into 2027.”

Mr. Rivera added that yields on selected tenors could move sharply higher if inflation expectations worsen, the peso weakens further, or global yields continue rising.

“Rates may remain firm, but it would take a significant global shock to push them that high,” Mr. Ravelas said. — Aaron Michael C. Sy