ADB: PH debt levels ‘sustainable’ despite more loans for vaccines

MANILA, Philippines — The new loans extended by multilateral lenders to buy and deploy COVID-19 vaccines would unlikely burden the Philippines’ debt servicing, the Asian Development Bank (ADB) said, even as the national government paid a record P962.47 billion in obligations last year.

The latest Bureau of the Treasury data showed that the amount of debt settled in 2020 exceeded the previous high of P939.22 billion in 2010.

The majority of last year’s debt service was for amortization, amounting to P582.05 billion, although the government’s primary payments in 2010 and 2011 were bigger and exceeded P600 billion each.

Domestic amortization payments amounted to P440.4 billion, while those for foreign debt reached P141.65 billion.

Interest payments climbed to an all-time high of P380.41 billion last year, of which a record P279.06 billion were for locally sourced borrowings as the government heavily relied on the domestic debt market, while P101.36 billion were paid for interest slapped on external financing sources.

According to ADB documents, the total of $700 million in loans it will co-finance with the Beijing-based Asian Infrastructure Investment Bank (AIIB) for the Philippines’ second health system enhancement to address and limit COVID-19 (Heal 2) project for COVID-19 mass vaccination “will add only 0.3 percent (ADB) and 0.2 percent (AIIB) to the public debt stock and will not significantly affect the debt-to-GDP ratio and annual debt service obligations.”

“The ADB and AIIB loans jointly will raise the public debt-to-GDP ratio marginally above the baseline scenario, to 49.1 percent in 2020 and to 58.4 percent by 2024. The ADB’s debt sustainability analysis concluded that even with the additional loans, the debt-to-GDP ratio will remain sustainable,” the Manila-based lender said.

The ADB already approved its $400-million share for Heal 2, while the AIIB board was expected to green-light its $300-million contribution also this month. Together with the $500-million loan approved by the Washington-based World Bank also last week, a total of $1.2 billion (over P58 billion) in concessional borrowings will finance the bulk of the P82.5-billion vaccine budget for 2021.

Since the forthcoming AIIB loan will be partially administered by the ADB, it shall have the same borrowing terms: 10-year maturity plus up to three-year grace period, and an interest rate at a spread of 50 basis points (bps) over LIBOR.

The ADB loan also slapped a rebate or surcharge reflecting the cost of funds plus a commitment charge of 15 bps per year on the undisbursed loan balance, while the AIIB portion carried 0.03-percent borrowing cost margin as well as maturity premium of 0.1 percent, ADB documents showed.

The government was expected to shoulder the balance unfunded by loans in the $764.17-million Heal 2 project, which will be implemented by the Department of Health (DOH).

The bulk of the project cost or 93.51 percent amounting to $714.57 million will be spent to “efficiently and effectively” deliver COVID-19 vaccines nationwide; $37.5 million will cover contingencies; while the remaining $12.1 million had been set aside for financing charges during implementation.