Borrowing mix 80:20 in favor of domestic sources
THE government’s gross borrowings fell 30.61 percent year-on-year in the first quarter of 2025 as domestic loans dropped sharply, data released by the Bureau of the Treasury (BTr) on Sunday showed.
The government’s total borrowings in the three months to March 2025 amounted to P745.142 billion, compared with P1.074 trillion a year earlier, the bureau said.
A private bank economist explained the sharp decline in government borrowings early this year was largely due to a higher base effect as a result of the large amount of retail treasury bond (RTB) issuance in the first quarter of 2024.
Michael Ricafort, Rizal Commercial Banking Corp. chief economist, said there was also a bigger amount of government securities maturing in the first three months of 2024 that prompted the government to issue RTBs to capture the maturing securities of investors, who were also looking for reinvestment options, such as retail bonds.
Of the government’s total gross borrowings, P450.8 billion came from local lenders and P294.342 billion from foreign creditors.
Loans from domestic sources shrank 52.87 percent from P956.581 billion a year earlier.
Of the total domestic borrowings by the Philippine government, P402.4 billion came through the issue of fixed-rate treasury bonds, and P48.4 billion through treasury bills.
On the other hand, borrowings from foreign creditors rose 151.02 percent from P117.257 billion recorded in January to March 2024.
External borrowings consisted of P17.177 billion in project loans and P85.2 billion in program loans. The government also raised P191.965 billion from its triple-tranche global bond issuances in February.
“The $3.29 billion global bond issuance in early 2025 could be part of hedging borrowing amid market volatility due to (US President Donald) Trump’s higher US import tariffs to somewhat front load some borrowings to almost complete the $3.5 billion programmed for 2025 as a matter of prudence,” Ricafort said.
The shifting trend
“The shifting trend on the composition of debt moving toward more foreign debt is an indication of the government’s efforts to raise funding while interest rates are still relatively low than what is forecast,” Reinielle Matt Erece, economist at Oikonomia Advisory & Research Inc., said.
“Securing debt now with lower repayment terms may be advantageous in the long run,” he said.
“As global uncertainty and trade tensions persist, inflation risks will also follow. This may prompt major central banks such as the Fed to cut rates slowly or if inflation expectations increase significantly, to even hike rates in the future, Erece added.
However, he said a negative effect of a high-interest rate environment dictates a potentially stronger dollar against the peso.
“This can make debt repayments more expensive if the peso continues to weaken,” Erece stressed.
“Lately, the strength of the peso is the impact of both a strong inflow of dollars from bonds, consistent remittances, and the weakening of the dollar as uncertainty continues to worsen,” he added.
A deliberate calibration
In the first quarter of last year, the government did not issue global bonds, but floated RTBs, which generated P584.861 billion in February 2024.
“The decline in gross borrowings (early this year) despite the sharp rise in external debt, reflects a more deliberate calibration of the government’s financing mix,” John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, said.
“The absence of a large RTB issuance this year, unlike in 2024, naturally pulled down domestic borrowings, explaining much of the year-on-year drop,” he said.
“Hence, the increase in external borrowings via the February global bond sale shows that the government is taking advantage of favorable international market windows, possibly frontloading before volatility rises from global uncertainties like the evolving tariff environment,” Rivera added.
Rivera noted a shift toward foreign debt carries both opportunities and risks.
“On the upside, tapping external sources helps preserve domestic liquidity, easing upward pressure on local interest rates,” he said.
“But on the flip side, it increases exposure to forex and refinancing risks, especially if the PHP weakens or global rates spike,” Rivera said.
Pragmatic balancing act
“This strategy suggests a pragmatic balancing act, less reliance on domestic retail funding, more selective engagement with global capital markets, and cautious pacing of borrowing aligned with cash flow needs and market conditions,” he added.
Going forward, Ricafort said government borrowings for the rest of 2025 would now tip in favor of local sources to better manage forex risks that go with external borrowings.
So far the government’s full-year borrowing mix of 80:20 is still in favor of domestic sources.
In April, the BTr raised P300 billion via a 10-year fixed rate treasury notes offer.
“The P300 billion 10-year local Treasury note is also a prudent move to hedge the national government borrowing requirements amid global market volatility, due to the Trump factor, to finance the budget deficit later in 2025 and would be reflected in the April 2025 borrowings data,” Ricafort said.
In March 2025 alone, while the government’s gross borrowings fell 7.15 percent to P192.45 billion from P207.265 billion a year earlier, it was influenced by the decline in foreign borrowings for the month.
Domestic borrowings rose 0.89 percent to P157.8 billion from P156.395 billion a year earlier, while funds owed to external sources declined by 31.89 percent to P34.65 billion from P50.87 billion in March 2024.
