Public debt: politician’s gain, taxpayer’s pain? was also published by The Manila Times on 24 January 2024.
Yesterday, 23 January 2024, national government debt increased by Php15 billion through a Treasury bills (T-bills) auction. The auction will be repeated every seven days until God knows when. Then today, 24 January 2024, Treasury bonds (T-bonds) worth Php 30 billion await the winning bidders. This weekly awarding of billions of pesos to bidders (investors, from the perspective of financial institutions, or lenders from the perspective of taxpayers) has been regularly conducted electronically since 1996. We borrow billions today to pay billions we borrowed as recently as three months ago. While this makes the investors richer, this leaves the taxpayers with hardly a time to catch their breath.
Both T-bills and T-bonds are securities (or debt-investment instruments) issued by the national government to investors who lend money to the government for the latter’s use. They guarantee repayment of principal (face value of the bond) plus interest to investors at maturity date. The Bureau of the Treasury (BTr) principally manages national government debt—organizing the auctions; managing reputational and operational risks; keeping the records, and validating as well as analyzing debt data; marketing the debt instruments (creating their demand and making them sound more like investment opportunities rather than a necessary burden to be lifted by taxpayers); coordinating with other government agencies on debt strategies and setting the debt calendar; engaging the private financial sector to help develop the local capital market, etc.
The BTr started posting online the schedule and results of T-bills and T-bonds offering in 2012. For January 11, 2012, the combined (all tenors) offering for T-bills was Php 9 billion, for January 5, 2012, the combined offering for T-bonds was Php 18 billion. From 2012 to the first quarter of 2024, the absolute volume of offering has increased by an annual average of 3 percent for T-bills, and 7 percent for T-bonds. The combined T-bills that are being offered on the table for each of the 13 auction days in the first quarter of 2024 are Php 15 billion; for T-bonds, Php 120 billion.
Maturity dates (or tenor) vary. The tenor of T-bills (91 days, 182 days, and 364 days) is shorter than that of T-bonds (5 years, 7 years, or 10 years). The calendar sets the auction for T-bills every Monday and for T-bonds every Tuesday. There are exceptions, such as this week or when either of those days fall on a holiday, or during times of calamities such as when there is typhoon or massive flooding. Occasionally, the government also issues special bonds, such as Retail Treasury Bond (RTB), Premyo Bond and, recently, Sukuk (Islamic) bond.
Investors generally prefer the shorter-term T-bills over T-bonds (1 peso in one’s pocket today is of greater value than 2 pesos that is yet to be collected tomorrow?). On the other hand, the government prefers T-bonds over T-bills (allowing the incumbent administration to pass the task of collecting taxes by which to repay the borrowing to the next administration?) and offers bigger returns to sell them.
At yesterday’s auction, annual interest averaged at 5.306 percent for the 91-day (3 months) debt paper, 5.766 percent for the 182-day (6 months) debt instrument, and 6.037 percent for the 364-day (1 year) issuance. The longer the maturity, the costlier the borrowing would be to the taxpayer. In any case, the average interest rate at 5.64 for 2024 borrowings (assuming the full offering in the amount of Php 780 billion for the year is fully awarded) would be Php 35.2 billion (net of 20 percent tax). For past, present, and future generations, it has become a fact of life that taxpayers are paying interest today for T-bills issued three months ago, six months ago, or a year ago.
Interest rates (the taxpayers’ burden) increased across the board in seven days. In last week’s T-bills auction, on 17 January 2024, the 91-day instrument cost the taxpayers an annual average interest rate of 5.226; 5.685 percent for the 182-day instrument; and 5.999 percent for the 364-day instrument.
One wonders why there is a need for T-bills, among other short-term securities (these issuances are patterned after the credit instruments of advanced countries). What are their proceeds imputed for? (Money is fungible, they say, so in the end it does not matter which fund source supports what.) It is unlikely they are meant to augment unfunded emergency expenses of government, given that the Marawi rehabilitation, for example, has taken years to even get started, or the emergency shelter assistance for super typhoon Yolanda victims that has taken up to three years to be distributed. It seems the easier way to explain it is that they are meant to stabilize cash flow positions in a regime where debt servicing and guaranteed contingencies have become a constant strain.
T-bonds, on the other hand, appear to address the budget deficit of the national government. For 2024, total proceeds from these bonds are projected to hit Php 1.8 trillion. The national government budget for this year is Php 5.768 trillion pesos, which is heavier (from the taxpayer’s perspective) by 9.5 percent than the 2023 budget. The projected deficit is Php 1.4 trillion.
Credit must be given to the bureaucrats in government, and to the BTr in particular, for having helped develop a robust local capital market over the years. This strategic, yet tsimis-sensitive, fund source has helped keep everybody happy: the financial institutions who make relatively modest money from risk-free investments in government securities, the politicians who get their pet projects funded, and the voters who keep the same crop of crafty politicians elected to office in every election.
Domestic borrowing, apart from foreign borrowing, has become handy for the national government to fund the budget deficit, and for the politicians (starting with the president) and the political appointees who continue to dream big with their innovative schemes to best serve the country. These evolving schemes include, among the notable ones: winning the peace by increasing their confidential funds at a dizzying rate every year; intensifying the seduction of foreign investments by doubling the budget for foreign travels, also every year; by arousing countryside development through staggering amounts of congressional allocations to favored partisan allies; and promoting inclusive yet discretionary governance by institutionalizing unprogrammed, pork barrel, funds.
Each year’s budget is unprecedented for the weight of the burden it imposes on the taxpayer and for the rate at which it grows its pork belly fat.
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