MANILA – The Bangko Sentral ng Pilipinas has advised the government to increase domestic borrowing and use the proceeds to buy dollars from the central bank for the government’s debt servicing requirements.

The government has yet to tap the remaining $750 million in its commercial borrowing program for the year and Finance officials said they were still determining the right timing for this fund sourcing activity.

However, BSP Deputy Governor Diwa Guinigundo reiterated monetary officials’ advise to the government to instead borrow on-shore and use proceeds of this to buy dollars from the central bank.

“The BSP feels that it is more advisable at this point to source the pesos from the local market and make use of those peso proceeds to buy dollar from the Bangko Sentral. The Bangko Sentral has, time and again, indicated its readiness to sell the dollars to the national government,” Guinigundo said.

He said that the government should take advantage of the current low interest rate environment and high-liquidity situation in the country to lessen foreign exchange risk.

He cited that if the government issues debt overseas, the dollar proceeds boosts the country’s net foreign assets and the gross international reserves.

However, since the government does not immediately use up all the proceeds of the foreign issuance, the dollars are placed with the BSP, which entails cost to the central bank since it pays the national government interest for its deposit.

Guinigundo said that when the government sources funding overseas, the dollar inflows are mopped up by the central bank to address its impact on the foreign exchange rate.

Also, the central bank swaps the foreign exchange inflows to peso, thus, increasing domestic liquidity or M3 in the economy.

Monetary officials earlier said an M3 growth of more than 20 percent for the Philippines will negatively impact on inflation.

As of last May M3 growth slowed to 7.9 percent year-on-year to P4.6 trillion from last month’s 9.1 percent expansion.

The government has a 75-25 borrowing program this year with bias on domestic fund sources.

In January this year, the government issued $1.5 billion worth of 25-year global bonds.*PNA

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