MANILA, Philippines—The head of the Beijing-based multilateral lender Asian Infrastructure Investment Bank (AIIB) on Wednesday (March 3) said there would be no “debt trap” as long as borrowings—like the Philippines’ loans for vaccine procurement and rollout—were well-spent amid an avalanche of debts in the thick of the fight against the health and socioeconomic crisis inflicted by the COVID-19 pandemic.
Speaking before members of the Association for Philippines-China Understanding (APCU) at its first online Manila Forum for Philippines-China Relations, AIIB president Jin Liqun said the loan to be released by AIIB and co-financed by the Manila-based Asian Development Bank (ADB) will help the Philippines “rapidly procure eligible” vaccines for SARS Cov2, the virus that causes COVID-19 and which first spread in China.
As the Inquirer earlier reported, the AIIB will chip-in $300 million while the ADB will lend a bigger $400 million for bulk of the $764.17-million (about P37-billion) needed to address the pandemic and limit virus transmission to be carried out by the Philippines Department of Health.
Together with incoming loan from the Washington-based World Bank, worth $500 million, the three multilateral development banks will inject a total of $1.2 billion into the Philippines’ coronavirus vaccination program after the lenders’ boards approve these financing within March.
The foreign loans will pay for most of the P70-billion unprogrammed appropriations in the 2021 national budget, which had been set aside to buy vaccines and roll-out mass injection nationwide.
The borrowings formed part of the record P3.03-trillion that the government wanted to borrow in 2021, which would kick up Philippine debt to more than P11 trillion by end of 2021 and further raise the debt-to-GDP ratio to 57 percent by end of the year. Current debt stood at a record high of P10.33 trillion in January 2021.
After the Philippines borrowed a gross amount of P2.74 trillion in 2020, its debt-to-GDP ratio, a measure of a country’s capacity to pay, climbed to a 14-year high of 54.5 percent reversing a gradual decline in recent years.
Jin said AIIB in 2020 extended a $750-million loan to the Philippines for its Cares (COVID-19 Active Response and Expenditure Support) plan. It was also co-financed by ADB.
“This budgetary support will go towards increasing the government’s testing capacity, bolstering vulnerable sectors including agriculture and providing conditional cash transfers and emergency assistance to poor households,” Jin said.
The Cares program loan also supposedly benefitted at least one million micro, small and medium enterprises (MSMEs), of which 58 percent were owned by women, through wage subsidies for their workers, Jin added.
Jin, who had been part of the ADB and stayed in the Philippines for five years, said he was “happy to work for this country in my new capacity and in a new way” through the AIIB, which had given priority to big-ticket infrastructure projects before the pandemic that started in China slammed into the world.
Asked about fears of a debt trap which could force borrower countries to also sell sovereign rights to repay debts, Jin replied: “Borrowing money from outside or incurring external debt is not necessarily the source of debt problem. It’s not the borrowing that created the debt problems—it’s the use of the proceeds of the debt.”
“It’s the use of borrowed money that matters,” Jin said.
“We attach great importance to the use of the resources from the debt—put them to the productive sectors, making sure that all these money would be used effectively,” he said.
“The project should be implemented on schedule so that you can start to have revenues without delay,” he added.
For Jin, debt-ridden countries could move out of the feared trap if they would use borrowings “judiciously” and “wisely.”
Prior to the pandemic that started in China, the Philippines had availed itself only of one loan—$500 million in 2017 from the World Bank for flood prevention projects in Metro Manila. The country became a last-minute AIIB founding member in 2015 because of reluctance over possible Chinese influence in the bank.
In 2020, the Inquirer reported that AIIB found implementation too slow of massive flood control projects by the Department of Public Works and Highways and Metropolitan Manila Development Authority.
AIIB had said stringent quarantine measures slowed project implementation in 2020 while a mere $6 million or 2.9 percent of the bank’s $207.6-million commitment was disbursed as of August 2020.
The World Bank also in 2020 reported a “moderately unsatisfactory” overall implementation progress of the flood control project, which would benefit 1.7 million residents living near 56 “potentially critical” drainage systems across an 11,110-hectare area in Metro Manila which regularly suffered from flooding.
Through this project, currently flood-prone areas in Metro Manila should be free of water within 24 hours following a major rainfall by 2024.
The project involved rehabilitating 36 existing pumping stations and building 20 new ones to be operational after three years.
Also, the project will reduce solid waste in waterways by encouraging 200 villages to adopt solid waste management programs and moving 2,500 informal settlers out of aress near drainage systems to at least seven resettlement sites.