The government will speed up approval of big-ticket infrastructure projects viable for financing through official development assistance (ODA) during the next two years before borrowing rates for the Philippines rise alongside the country’s moving up to upper middle-income status.
“Definitely, we will be fast-tracking our drawdowns. The interest-rate differential is not that big anyway, and it’s only fair to everybody. Money is scarce, so they want to make sure that those who need it or those who can use it productively get more,” Finance Secretary Carlos Dominguez III said when asked how the Philippines would prepare ahead of higher interest rates to be slapped by bilateral partners as well as multilateral lenders on loans when the country crosses the upper middle-income threshold—defined by the World Bank as per capita income above $3,956.
The government expects the Philippines to achieve upper middle-income status next year.
The slower economic growth at the start of this year due to underspending on public goods and services caused by the late budget approval delayed the country’s bid to achieve a higher per capita income.
Upon becoming an upper middle-income economy, the Philippines has two years or until 2022 to avail itself of preferential rates from multilateral lenders such as the Asian Development Bank, the Asian Infrastructure Investment Bank and the World Bank as well as bilateral partners such as China and Japan, among other countries belonging to the Organization for Economic Cooperation and Development grouping of rich and developed nations.
Dominguez said interest rates would increase by about 50 basis points—“it’s not a big jump”—when Filipinos become more prosperous.
During the ninth high-level meeting of the Philippines-Japan Joint Committee on Infrastructure Development and Economic Cooperation held in Hakone, Japan, last week, Philippine and Japanese economic officials discussed the loan financing arrangements for the Philippines as it transitions to upper middle-income country status ahead of schedule in 2020, the Department of Finance earlier said.
In the case of borrowings from Japan, the Philippines can no longer quality for the special terms for economic partnership funding from the Japan International Cooperation Agency when it becomes an upper middle-income country.
Presidential adviser for flagship programs and projects Vivencio Dizon said borrowing rates would likely be “a little below commercial, but not the kind of rates we’re enjoying now.”
Dizon, who is also president and chief executive of the state-run Bases Conversion and Development Authority, said he was hopeful that the country could still get cheap financing “because we still need to build more infrastructure.”
Dizon said the government would speed up negotiations with lenders to secure as much ODA financing as possible in the next couple of years.
“We really want to identify new projects that we can finance through ODA to avail [ourselves] of the cheap financing, then fast-track their approval,” Dizon told the Inquirer.