1. 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

2. 2 2 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.

3. 3 3 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.

4. 4 4 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

5. 5 5 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.

6. 6 6 Milestones....... 1897 1897 – The Filipino nation had its first National Treasurer in the person of Baldomero Aguinaldo. 1900 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.

7. 7 7 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.

8. 8 8 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).

9. 9 9 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.

10. 10 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.

11. 11 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.

12. 12 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.

13. 13 Background | Why the Government Borrows?

14. 14 Background 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) Why Governments borrow?

15. 15 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”

16. 16 Domestic Borrowings Tax Revenues (i.e. VAT, Custom Duties) Non-Tax Revenues (i.e. fees and charges, BTr Income) FINANCING SOURCES Foreign Borrowings Internal Revenue Allotment (IRA) Interest Payments Agency Budgets Capital Outlays Personal Services/ Maintenance and Operating Expenditures Borrowing supports the budget requirements of the public sector. Why our government borrows? EXPENDITURES REVENUES DEFICIT

17. 17 Rationale of deficit spending? A Filipino Family MONTHLY INCOME Mother’s Part-time 2,000 Father’s Salary 13,000 Total Income 15,000 TYPICAL MONTHLY EXPENSES Food6,000 Housing 2,000 Transport1,000 Light/Water2,000 Education3,000 Health2,000 Total 18,000 Others2,000 DEFICIT = 3,000 Company Loan Family/Friends SSS/GSIS/Bank Loan

18. 18 Rationale of deficit spending? Borrowings Productive Spending/ Economic and Social Investments Increased Economic Activities and Jobs Increased Taxes Increased Ability to Repay Increased Fiscal Space Improved Social Outcomes (MDGs) The money we borrow, when managed effectively, can be used to grow the economy, provide more jobs and upgrade our quality of life.

19. 19 2013 Budget Allocation by Sector

20. 20 GOVERNMENT DEBT | Where are we know?

21. 21 Debt level remains sustainable Where we are now ?

22. 22 Declining Vulnerability to FX Risk The share of foreign currency denominated debt to total National Government debt has been gradually declining over the years. *includes MRTBs and ODB * Domestic / foreign borrowing mix effectively managed

23. 23 Managing the Debt Portfolio Heavy Bias Towards Domestic Debt

24. 24 Ability to Service Debt Revenues allocated to debt service have declined drastically

25. 25 Ability to Service Debt More funds are being allocated to productive spending as share of interest payments over expenditures decline, even as deficit narrows.

26. 26 “ The ratings and outlook are supported by 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 ” “ In addition to lower headline deficits, the 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 ” “ 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 ” Credit ratings are moving in the right direction Baa3 Ba1 Ba2 Ba3 B1 B B- Fitch: Upgraded to BB+ (June 23, 2011)/ Outlook: Stable S&P: Upgraded to BB+ (July 4, 2012)/ Outlook: Stable Moody’s: Upgraded to Ba2 (June 15, 2011)/ Outlook: Positive (May 29, 2012) BBB- BB+ BB BB- B+ B B- BBB- BB+ BB BB- B+ B B- Source:Moody’s, S&P and Fitch.

27. 27 MOVING FORWARD | How do keep National Government Debt from ballooning?

28. 28 Ensuring debt sustainability Government can sustain its ability to repay debt obligations without compromising spending for the people NEED TO INCREASE FISCAL SPACE Invest in social welfare and fund PNoy’s Social Contract Honor and repay our debt obligations Good Governance Fiscal Consolidation Prudent Debt Management FISCAL DISCIPLINE TRANSPARENCY AND ACCOUNTABILITY PRIORITY OBJECTIVE MEASURES PRINCIPLES

29. 29 Three pronged approach Ensuring debt sustainability  Good-Governance  Fiscal Consolidation  Prudent Debt Management

30. 30 Good Governance Key Reforms Instituted by the Administration 30 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

31. 31 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

32. 32 Prudent Debt Management  Sound Issuance Policy -financing mix -innovative products/tight spreads -locking-in low rates -extending maturity  Liability Management Exercise -redenomination -buybacks

33. 33 BTr’s Role to Achieve a Sound PFM System

34. 34 Treasury Single Account (TSA) 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. Section 2 b) of Executive Order No. 55 states that….

35. 35 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

36. 36 Benefits of Cash Management  E nsures obligations can be met as they fall due  M inimizes idle cash balance and associated costs  C ontributes to the development of short term money markets  R educes liquidity impact from budget deficits/surpluses  S eparation of cash management and monetary policy  E nhances transparency of government flows

37. 37 Establishment of the TSA Government overnight balances in the banking system should be zero The Aim : 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

38. 38 Steps Being Undertaken Strengthening of the Cash Programming and Monitoring Committee (CPMC) Composition : DBM, DOF (BIR, BOC, BTr), BSP, NEDA Chairperson : BTr

39. 39 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

40. 40 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

41. 41 Thank you !