Bond Spreads to Tighten If VAT Passed

Article excerpt

MANILA (Dow Jones) The gap between Philippine sovereign bonds and US Treasurys, which narrowed recently, could further tighten albeit marginally once revisions to raise more revenue from the value-added tax are passed, National Treasurer Omar Cruz said.

The government hopes the passage of the VAT bill will significantly improve its fiscal position, which should lead investors to demand lower bond yields.

Even so, Cruz said passage of the VAT bill wont be the key to the governments return to the international debt market but overall market conditions.

He pointed out that it would be difficult for the government to borrow again if the market isnt ready for a new debt supply from the sovereign.

"The problem is that you can lead the horse to the water but you cant force it to drink," Cruz said.

The government has obtained central bank approval to again raise funds abroad, which could come as early as the second quarter.

After raising $1.5 billion in late January, the government still has to borrow $2.5 billion for the rest of the year to help bridge a budget shortfall that is expected to hit P180 billion ($3. …