Funding the Republic Towards Sound
PFM System :
A Mission of the Bureau of the
Treasury
CHRISTINE LACSON-SANCHEZ
Deputy Treasurer of the Philippines
April 5, 2013
What is the Mission of the BTr ?
Mission Statement
To efficiently and effectively manage the
financial resources of the government
by maximizing revenues from available funds
and minimizing costs of financing whenever
possible.
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What is the Vision of the BTr ?
Vision Statement
To be a pro-active manager of the public funds
characterized by active duration management,
minimization
of
interest
rate
risks
and hedging of financial risks.
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What does the BTr do?
 Contributes to the formulation of fiscal
policies particularly on borrowing,
investment and capital market
development
 Prepares the domestic financing
program of the National Government
 Manages the cash resources of
government
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What does the BTr do?
 Report to the public through the media
on a regular basis the results of the Cash
Operations Report (COR) of the National
Government as well as on the National
Government debt.
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Milestones . . . . . . .
1897 –The Filipino nation had its first National Treasurer
in the person of Baldomero Aguinaldo.
1900 – The Philippine Commission headed by William
Taft created the Bureau of Insular Treasury task to receive
and disburse public funds and account for the same.
It also began the supervision of the country’s banks.
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Milestones . . . . . . .
1901 – The Bureau of Insular Treasury was placed under
executive control of the Department of Finance and Justice
by Section 3 of Act Number 222.
1905 – The Bureau of Insular Treasury was renamed to
Bureau of the Treasury by Act 1679 and given the
additional task of coinage and currency supervision.
1929 – The Bureau of Banking assumed the supervision of
the country’s banks from the Bureau of Treasury. The
Bonding Law was passed as a provision of Admin Code of
1917.
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Milestones . . . . . . .
1949 – Republic Act 265 transferred the functions of
coinage and currency printing from the Bureau of the
Treasury to the newly organized Central Bank of the
Philippines.
1965 –Bureau of the Treasury branches were opened
throughout the country.
1971 – The Bureau of Treasury was reorganized into 3
major services – Financial and Admin, Cash Operations
and Public Debt Management Services under RA 6130
(Integrated Rationalization Plan).
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Milestones . . . . . . .
1986 – Executive Order 127 reorganized the Bureau of the
Treasury .
1993 – The Bureau accounted an P18 B surplus, ending
two decades long of budgetary deficits.
1995 – The Bureau assumed the fiscal function, namely
the issue, service and redemption of government
securities as mandated by RA 7653 or the New Central
Bank Act.
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Milestones . . . . . . .
1995 – The Bureau assumed the fiscal function, namely
the issue, service and redemption of government
securities as mandated by RA 7653 or the New Central
Bank Act.
The Electronic Auction of the Philippine government
securities was introduced, the first of its kind in Asia .
1996 - Issued 7and 10 year bonds, also, the first in Asia.
- Introduced the Registry of Scripless Securities
(RoSS), an electronic system for official registration of
scripless/uncertificated government securities from the
time of origination to redemption.
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Milestones . . . . . . .
1998 – The Bureau launched the Small Investors Program
(SIP) that allows the selling of government securities to
small savers.
2003 – The Bureau capped the year with international
awards from International Finance Review (IFR) Magazine’s
Asia Awards for “being the largest retail bond in the local
market and Asia’s largest retail-targeted bond ever”.
These are : the Domestic Bond Deal of the Year and the
Philippine Capital Markets Transaction of the Year awards.
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Milestones . . . . . . .
2010 – The Bureau embarked on the Financial Sector
Stabilization Program (FSSP), a multi-year, multi-pronged
but systematically linked program designed to address the
weaknesses in the fiscal sector consisting of Cash and
Asset-Liability Management System.
2012 – The Bureau completed the digitization of backpay
records.
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Background | Why the Government Borrows?
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Background
Why Governments borrow?
 To bridge the time mismatch between government revenues
and expenditures
 To finance relatively expensive but socially responsive
programs which are essential to enhance the productive
capacity of the country.
 To spur economic activities when the private sector activities
are constrained by weak economic conditions. (in times of
crisis)
 To set benchmarks for borrowings undertaken by the private
sector. (especially the case for “surplus” countries like Qatar)
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Why our government borrows?
The government borrows because we simply do not have enough
revenues to finance government operations, which include programs
and projects that promote welfare and development.
This results in “Deficit Spending”
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Why our government borrows?
Borrowing supports the budget requirements of the public sector.
FINANCING SOURCES
Agency Budgets
Personal Services/
Maintenance and
Operating Expenditures
Interest Payments
(i.e. VAT, Custom Duties)
Non-Tax Revenues
(i.e. fees and charges,
BTr Income)
REVENUES
Tax Revenues
EXPENDITURES
Domestic Borrowings
DEFICIT
Foreign Borrowings
Internal Revenue
Allotment (IRA)
Capital Outlays
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Rationale of deficit spending?
TYPICAL MONTHLY
EXPENSES
A Filipino Family
MONTHLY INCOME
Father’s Salary
Mother’s Part-time
Total Income
13,000
Food
6,000
Housing
2,000
Transport
1,000
Light/Water
2,000
Education
3,000
Health
2,000
Others
2,000
Total
18,000
2,000
15,000
Family/Friends
DEFICIT = 3,000
Company Loan
SSS/GSIS/Bank
Loan
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Rationale of deficit spending?
Borrowings
Increased Ability to
Repay
Productive Spending/
Economic and Social
Investments
Increased Fiscal
Space
Improved Social
Outcomes (MDGs)
Increased Economic
Activities and Jobs
Increased Taxes
The money we borrow, when managed effectively, can be used to grow
the economy, provide more jobs and upgrade our quality of life.
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2013 Budget Allocation by Sector
Others
5.8%
General public
service
17.3%
Social services
34.8%
Debt burden
16.6%
Economic
services
25.5%
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GOVERNMENT DEBT | Where are we know?
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Where we are now ?
Debt level remains sustainable
6,000
80.0%
74.4%
68.5%
5,000
4,000
5,437
66.9%
3,888
3,812
4,718
61.4%
3,852
3,712
60.5%
4,951
70.0%
4,397
4,221
54.8%
54.7%
53.9%
60.0%
52.4%
50.9%
51.4%
54.0%
3,000
50.0%
47.8%
48.4%
47.9%
46.2%
2,000
1,000
384
454
464
418
525
508
559
44.8%
44.9%
586
696
-
40.0%
30.0%
20.0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
NG Debt - LHS
NG Debt Holdings of the BSF - LHS
Debt/GDP -RHS
Debt/GDP (Net of BSF Hold's) - RHS
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Domestic / foreign borrowing mix effectively managed
Declining Vulnerability to FX Risk
The share of foreign currency denominated debt to total National Government
debt has been gradually declining over the years.
50.8%
49.2%
2003
52.5%
47.5%
2004
55.7%
55.9%
59.3%
57.2%
56.2%
57.1%
57.6%
0.9%
2.0%
63.0%
2.4%
44.3%
44.1%
40.7%
42.8%
43.8%
41.9%
40.4%
34.6%
2005
2006
2007
2008
2009
2010
2011
2012
FXC Denominated *
*includes MRTBs and ODB
GPN
PHP Debt
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Managing the Debt Portfolio
Heavy Bias Towards Domestic Debt
54.7%
65.8%
64.5%
56.2%
56.6%
73.4%
65.6%
65.2%
83.8%
85.8%
45.3%
34.2%
35.5%
5.9%
9.8%
28.5%
25.0%
43.8%
43.4%
26.6%
14.2%
2003
2004
2005
2006
2007
Foreign
2008
GPN
3.2%
13.0%
2009
2010
2011
2012
Domestic
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Ability to Service Debt
Revenues allocated to debt service have declined drastically
35.4%
36.9%
36.7%
31.7%
23.6%
2003
2004
2005
2006
2007
22.6%
2008
24.8%
2009
24.4%
2010
20.5%
20.5%
2011
2012
Interest Payments / Revenue
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Ability to Service Debt
More funds are being allocated to productive spending as
share of interest payments over expenditures decline, even as
deficit narrows.
29.2%
31.1%
29.7%
27.0%
23.3%
2003
2004
2005
2006
2007
21.4%
2008
19.6%
19.3%
2009
2010
17.9%
17.7%
2011
2012
Interest Payments / Expenditure
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Credit ratings are moving in the right direction
“ Philippines’s fiscal flexibility is gradually
increasing, reflecting an improving
government debt profile and
moderating debt burden. We expect the
country will move into a slight net-external
creditor position this year
strong external finances, a track record
of macroeconomic stability, favorable
economic prospects, and falling public
debt ratios. The strength of the external
finances also suggests the capacity to
absorb a substantial external shock
”
Moody's
S&P
Jul-11
Jul-10
Jul-09
Jul-08
Jul-00
Jul-12
Jul-11
Jul-10
Jul-09
Jul-08
Jul-07
Jul-06
Jul-05
Jul-04
Jul-03
Jul-02
Jul-01
Jul-00
B-
Jul-12
B-
Jul-11
B-
Jul-10
B
Jul-09
B
Jul-08
B
Jul-07
B+
Jul-06
B+
Jul-05
B1
Jul-04
BB-
Jul-03
BB-
Jul-02
Ba3
Jul-01
BB
Jul-07
BB+
BB
Jul-00
Ba2
Fitch: Upgraded to
BB+ (June 23, 2011)/
Outlook: Stable
Jul-06
BB+
Moody’s: Upgraded to
Ba2 (June 15, 2011)/
Outlook: Positive
(May 29, 2012)
BBB-
Jul-05
Ba1
S&P: Upgraded to
BB+ (July 4, 2012)/
Outlook: Stable
Jul-04
BBB-
Jul-03
Baa3
”
Jul-02
”
Jul-12
Philippine government’s debt profile has
improved: average tenors have
lengthened, while debt servicing costs
have decreased. The government is less
reliant on external financing than many
of its ratings peers
“ The ratings and outlook are supported by
Jul-01
“ In addition to lower headline deficits, the
Fitch
Source: Moody’s, S&P and Fitch.
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MOVING FORWARD | How do keep National
Government Debt from ballooning?
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Ensuring debt sustainability
Government can sustain its ability to repay debt obligations without
compromising spending for the people
PRIORITY
OBJECTIVE
MEASURES
Invest in social welfare and
fund PNoy’s Social
Contract
Honor and repay our debt
obligations
NEED TO INCREASE FISCAL SPACE
Good Governance
Fiscal
Consolidation
PRINCIPLES
FISCAL DISCIPLINE
Prudent Debt
Management
TRANSPARENCY
AND
ACCOUNTABILITY
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Ensuring debt sustainability
Three pronged approach
Good-Governance
Fiscal Consolidation
Prudent Debt Management
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Good Governance
Key Reforms Instituted by the Administration

Prudent fiscal controls coupled with intensified revenue collection efforts over the past year have
laid the framework for efficient budgetary allocation in 2012

Tax reform measures including the hike in the Sin tax (alcohol and tobacco product taxes) and the
proposed rationalization of fiscal incentives aim to further improve the fiscal position

Tighter prioritization of expenditures through the Zero Based Budgeting approach, improved
composition of expenditures and quality of government services

Rigorous implementation of RATE, RATS, RIPS programs to go after evaders, smugglers,
corrupt officials, respectively, have improved tax collection

Contracts and public tenders are now posted on public websites to instil transparency in the
procurement process

Set-up BIR key performance indicators and publish actual results; establish appropriate
performance standards and evaluations

Enacted the GOCC Governance Act of 2011 which lays the groundwork for enhanced discipline in
GOCCs

Set up the Debt Management Office at the Department of Finance which is tasked to formulate
and oversee the implementation of the Republic’s debt management strategy
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Fiscal Consolidation
Deficit Targeting (2% of GDP from 2014-2016)
Fiscal Discipline
- Tapping PPPs
Improve Tax Measures
- Rationalization of fiscal incentives
- Sin Tax Law
- RIPS, RATS, RATE
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Prudent Debt Management
Sound Issuance Policy
-financing mix
-innovative products/tight spreads
-locking-in low rates
-extending maturity
Liability Management Exercise
-redenomination
-buybacks
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BTr’s Role to Achieve a Sound
PFM System
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Treasury Single Account (TSA)
Section 2 b) of Executive Order No. 55 states that….
The PFM Committee shall carry out all necessary activities for the
completion and installation of the following PFM systems within the
current administration:
b) A TSA that provides BTr a more effective way of cash
management and rationalizing agency bank accounts, a more
economical system for cash disbursements which will remove
revenue and expenditure floats, and a more efficient
reconciliation of bank balances.
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What is Cash Management ?
 It is a strategy and associated processes for
managing cost-effectively the government’s
short-term cash flows and cash balances both
within government and between government and
others sectors.
Ensuring cash is available to meet commitments
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Benefits of Cash Management
 Ensures obligations can be met as they fall due
 Minimizes idle cash balance and associated costs
 Contributes to the development of short term money markets
 Reduces liquidity impact from budget deficits/surpluses
 Separation of cash management and monetary policy
 Enhances transparency of government flows
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Establishment of the TSA
The Aim :
Government overnight balances in the banking
system should be zero
Intermediate Objective :
•
•
•
•
Identify all NG bank accounts
Integrate them into single TSA
Remove collection floats and seed funds
Ensure that all NG cash flows pass thru TSA
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Steps Being Undertaken
• Strengthening of the Cash Programming and
Monitoring Committee (CPMC)
Composition :
DBM, DOF (BIR, BOC, BTr), BSP, NEDA
Chairperson : BTr
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Steps Being Undertaken
• Constitution of working groups within the Bureau
to expedite the development and implementation
of the Treasury Single Account
- Treasury Accounts in Foreign Currencies & Dormant
-
Accounts
Treasury Accounts in Pesos: Collection and
Disbursement Accounts
Off-Budget Accounts and Bond Sinking Fund Analysis
Government Agencies Accounts
GOCCs Accounts
IT Implementation Group
Legal and Regulatory Analysis, Text Preparation
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Steps Being Undertaken
- Technical and Functional Analysis for Implementing TSA
- Relation between BSP and Treasury
- Relation between Treasury and the banking Sector
(Including GFIs), Collection Issue, Seed Fund
- Restructuring of the Treasury Organization
- Capacity Building in the Treasury
- Developing Investment Instruments and Modernizing
the Repo Market
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Thank you !
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