REPUBLIC OF THE PHILIPPINES

BUREAU OF THE TREASURY

Session 7: governance framework to

manage risks from contingent liabilities

Rosalia V. De LeonTreasurer of the Philippines

National Government Direct Guarantees

SOURCES OF CONTINGENT LIABILITIES

GOCC Charters

▪ Authority to borrow

▪ Example: NFA is allowed to borrow commercially to finance its operations with NG

guarantees

Republic Act 4860 (Foreign Borrowings Act), amended under Presidential Decree No. 1939

▪ NG caps outstanding guarantees to GOCCs at USD7.5B

Department of Finance Circular 1-2016

▪ Risk-based guarantee framework

Executive Order 245

▪ BTr’s mandate to guarantee foreign exchange cover fees due NG

Republic Act No. 8182, as amended (Official Development Assistance)

▪ Guarantee foreign loans extended to GOCCs for economic development purposes

provided that at least 75% is spent for projects which are revenue-generating and

self-liquidating

LEGAL BASISWe provide two guarantees: Direct Guarantees (support to GOCCs) and Indirect Guarantees

National Government provides guarantee to GOCC projects which are:

• Consistent with the objectives and goals under Philippine Development Plan and are within the identified priority programs and projects under the Medium Term Public Investment Program

• GOCC projects which passed the test of economic and social viability and have satisfied all the conditions set forth by the Investment Coordinating Committee (ICC)

• Off balance sheet –Contingent Liabilities

NG GUARANTEES

BUREAU OF THE TREASURY

SAFEGUARDS IN ISSUING GUARANTEES

Timeliness

• Request for programming of net lending assistance submitted to DOF on or before the succeeding year of the required advances

• Actual drawdowns from the net lending program submitted 90 days prior to actual drawdown

Monitoring

• Projected receipts and expenditures submitted by GOCCs are reviewed and evaluated

• BTr submits a monthly summary of advances to and collections from GOCCs

Inter-Agency Evaluation and Appropriation

• The DBCC consisting of DOF, BTr and DBM determines the appropriate amount to be programmed for net lending

• The decision is considered in the fiscal programming and monitoring of the Consolidated Public Sector Financial Position

Penalty Charges

• NG imposes penalty charges to advances made by NG as guarantor of GOCC obligations without endorsement from DOF

National Government Guaranteed Borrowings undergo a

stringent process to ensure prudent management of contingent

liabilities.

DIRECT GUARANTEESDeclining exposure to NG direct guarantees as % to total GDP

47.9% 21.0% 12.1% 5.4% 13.7%

GOCCs’ Share of Outstanding Guaranteed Debt

PSALM NFA DBP LBP Others

August 2018

49

5.8

59

1.7

70

8.5

833.7

58

6.4

56

9.9

48

4.2

54

5.6

61

4.1

54

9.8

57

3.4

63

2.1

597.8

55

1.1

54

5.1

51

3.7

47

8.1

48

0.3

12.7%

14.1%

15.6%16.3%

10.3%

9.1%

7.0% 7.1%7.7%

6.1% 5.9% 6.0%

5.2%

4.4% 4.1%3.5%

3.0% 2.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Aug-18

Bill

ion

s P

HP

NG Outstanding Guaranteed Debt NG Guaranteed Debt/GDP

DEBT GUARANTEE VALUATION

Old approach

• Old framework – flat pricing

▪ 1% guarantee fee rate

▪ 3% FX cover fees regardless of currency

Risk-based Policy Framework| Issuance and Pricing of Guarantees

Cap of Fees• 1.5% cap on guarantee fees since GOCCs charged

greater than 1.5% are usually highly subsidized.

Performance Monitoring

• The GOCCs and GFIs’ performance are monitored.

Adjustment Rate• Based on performance, guarantee fees are subject to a

step-up or reduction rate. The adjustment will be at least 10bps.

Qualitative Factors• Governance rating, development goals and other

qualitative factors are considered in the final guarantee fee payable.

Key Features

Forms part of the prudent fiscal management of the NG to improve the

management of guaranteed debt, recognize the real cost of a

guarantee and FX risk cover as it relates to the financial conditions of

GOCCs according to set parameters, and for the framework to align

with international standards.

Indirect Guarantees:Public Private Partnerships

SOURCES OF CONTINGENT LIABILITIES

Public-Private Partnerships (PPP)

• LEGAL BASIS:

• CL based on individual PPP contracts

• Build Operate Transfer Law

• Indirect Guarantee

• Regulatory risk instead of market risk

PPP OVERVIEW

BUREAU OF THE TREASURY

MEMBERS

• Bureau of Treasury (secretariat)

• Department of Finance

• Department of Budget and Management

• PPP Center

TASKS

✓ Manage CL of PPPs

✓ Monitor project implementation

✓ Policy recommendation

✓ Valuation methodology to guide policy:

• Portfolio Risk Management Approach

TECHNICAL WORKING GROUPOn Contingent Liabilities

BUREAU OF THE TREASURY

Risk Management Program (RMP)

✓ Unprogrammed Appropriation

✓ Since 2014

✓ Can be availed with the recommendation of TWG-CL given:

✓ Excess revenue Collection

✓ New Source of Revenue

✓ FY 2018 Provision, FY 2019 Proposal is PHP 30 billion

PPP | BUDGETING

Type of ProjectNumber of

ProjectsSize

(Php Billions)CL Value

(Php Bilions)

Current (2010 onwards)

16 200.76 11.65

Legacy (pre-2010) 61 752.66 10.97

TOTAL 77 953.42 22.62

Total in USD ~17.65 B ~ 418 M

Comprehensive view of the exposure to fiscal risks from

✓ Fiscal projections and turnouts

✓ public debt and

✓ contingent liabilities

✓ Stock and flow

✓ GOCCs, PPPs, LGUs, Natural Disasters, etc

PPPs

✓ List of awarded PPPs

✓ Details on expected disbursements

Reforms and risk-mitigation efforts

FISCAL RISK STATEMENT

REPUBLIC OF THE PHILIPPINES

BUREAU OF THE TREASURY

End of slide

Thank you.