Key Bond Market Reforms and Recent Developments ... - World Bank

Key Bond Market Reforms and Recent Developments ... - World Bank

Key Bond Market Reforms andRecent Developments:Philippine Case StudyA Presentation ofEduardo Sergio G. EdezaTreasurer of the PhilippinesShanghai, China15 November 2002

OutlineI. State of the NationalGovernment DebtII.III.Functions of the TreasuryThe Domestic GovernmentSecurities MarketIV. Initiatives in Developing theBond Market & ImprovingDebt Management2

I. State of the NationalGovernment Debt

National Government Debtas of August 2002PhP 2.695 trillion(~ USD 52 billion)At central bank reference rate of P51.800/US$1.00prevailing on 8/30/20024

Contingent Obligations asof August 2002:PhP 0.547 trillion(~ USD 11 billion)At central bank reference rate of P51.800/US$1.00prevailing on 8/30/20025

National Government Debt bytenor* (in trillion pesos)Long-term 1.610 60%Medium-term 0.681 25%Short-term 0.404 15%Total 2.695 100%* by issue date6

National Government Debtby currency (in trillion pesos)Domestic 1.408 52%Foreign 1.287 48%Total 2.695 100%7

National GovernmentForeign Debt by currency(in trillion pesos)US$ 0.739 57%Yen 0.433 34%Others 0.115 9%Total 1.287 100%8

National GovernmentDebt to GDP2001 2002 aThailand 25% 26%Malaysia 44% 44%Indonesia 95% 82%Philippines 66%a as of June 200270% 9

Maturity Profile of NationalGovernment DebtAverage maturity• Domestic debt (Govt.securities) : 6 years• Foreign debt : 15.8 years10

Maturity Profile of NationalGovernment Debt350Billion Pesos3002502001501005002002 2007 2012 2017 2022 2027 2032 2037 2042*Excludes Treasury Bills11

II. Functions of theTreasury

Organizational Set-up• The Treasury is an attachedagency of the Department ofFinance• Has independence in areasof domestic debt issuance,cash and debt management13

Functions– Domestic debt issuance– Management of nationaldebt– Monitor/report contingentdebts– Operate the RoSS– Cash management14

Functions–Additional functions of theTreasurer– Foreign commercialborrowing– Oversight of all foreigndebt issuance ofgovernment corporations15

III. The DomesticGovernment SecuritiesMarket

Outstanding DomesticGovernment Securities (asof Aug. 2002)• PhP 1.38 trillion– Tbills: PhP 404 B– Tbonds: PhP 977 B17

Maturity Profile of GovernmentSecurities• Average maturity : 5 years• Duration– new domestic issuances: 3years– new foreign issuances: 8 years18

Maturity Profile ofGovernment SecuritiesBillion Pesos2001801601401201008060402002002 2005 2008 2011 2014 2017 2020*Excludes Treasury Bills19

Domestic Debt Issuance:General Parameters• Internal approval from Treasury andFinance Dept.• Legal clearance from Justice Dept.• Audit approval from state auditors• Tax clearance, if necessary• Presidential full powers• Central Bank opinion on effects onmonetary policy20

The Primary Market•Auction– processElectronic– T-bills issued every two weeks:English– T-bonds issued every week: Dutch– Auction committee composed ofTreasury, Finance, SEC andCentral Bank representatives22

The Secondary Market• Average turnover: 37.7% permonth (Oct. 2002)• Share of private sector onoutstanding govt. securities:66.3% (Oct. 2002)• Average daily transaction:PhP 17 Billion (Oct. 2002)23

The Secondary MarketMarket benchmarks areavailable through Bloomberg– All dealers required to post quotesfor all on-the-run maturities– Summary of secondary market tradesare posted daily• RoSS provides the registry• DVP24

IV. Initiatives in Developingthe Bond Market andImproving Debt Management

Bond Market Development• Increase liquidity: institute a reissueprogram• Increase the number of debtinstruments• Issue to the retail market– Offer Retail Treasury Bonds– Enhance the Small Investors Program• Issue innovative instruments(swaps, zeroes, dollar-linked) 26

Bond Market Development• Improve transparency andenhance credibility:– Advance release of auctioncalendar– Hold regular dialogues with marketplayers– Publication of maturity profile• Establish market benchmarks27

Debt Management• Tap various markets• Monitor a mix of domestic andforeign indebtedness• Establish good investor relationsand credit standing• Tap the efficient portion of thedebt market28

Debt Management• Lengthen the maturity profile• Introduce innovations toreduce spreads on RP Bonds• Capitalize on low rate periods29

In the Pipeline• Delivery-versus-Payment (DVP)System• Strengthen the riskmanagement system within theBureauBuild a Middle OfficeUse of hedging instruments30

In the Pipeline• Keep an open mind oninnovative instruments• Align local withinternational best practicesReview of auction rulesReview of dealer accreditationguidelines31

In the Pipeline• Securities lending• Review tax treatment ofgovernment securities andrepos32

In the Pipeline• Vision: to have a DebtManagement Office for thePhilippines where all debtorigination, servicing andmanagement will be handled.33


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