Borrowing costs

DOF expects higher borrowing costs

MANILA, Philippines — The Department of Finance (DOF) expects borrowing costs to rise amid an escalating conflict between Russia and Ukraine.

Finance Secretary Carlos Dominguez said the government would depend on its funding needs from the 458 billion pesos raised by the Treasury Office through the 27th tranche of retail treasury bills (RTBs).

“Following strong RTB reception, the government is well positioned to meet disbursements despite rejections from the Treasury at the auction,” Dominguez said in a text message to reporters.

Last week, the Treasury closed the public offering for RTBs, raising 457.8 billion pesos from mostly small-scale investors. RTBs, which can be bought at a minimum bid of 5,000 pesos, fetched 120.8 billion pesos during the price-fixing and 337 billion pesos during the two-week offer.

Going forward, Dominguez said the government faces a dilemma of where to borrow, as debt markets here and abroad demand higher interest rates.

He said the DOF would first look at the bond market before launching its first offering of $500 million in green bonds.

In a report to President Duterte, Dominguez said the Philippines could suffer indirect damage to commodity prices, borrowing costs, capital inflows and additional spending due to ongoing tensions between Ukraine and Russia .

Regarding commodity prices, the country should anticipate a surge in world prices for wheat and corn, with Russia being the world’s leading exporter of wheat while Ukraine is the fourth for corn.

In the long term, European countries that sourced from Russia and Ukraine will import from countries like China and the United States. If the tensions continue, world wheat and maize prices are expected to rise as demand eventually overwhelms supply, analysts said.

They also said the conflict could also magnify investment risks on top of the US Fed’s plan to raise interest rates to keep inflation under control.

Dominguez said Western-imposed sanctions on Russia could force investors to put investment plans on hold, which could negatively impact developing economies like the Philippines.

“All of the aforementioned economic impacts will likely require government support to protect our vulnerable citizens and critical sectors most affected by the crisis, and this will stretch our budget even further,” Dominguez said.