MANILA, Philippines — The Philippines has secured a new $600-million loan from the World Bank, bringing the country’s total pandemic-related foreign borrowings, accumulated since March last year, to $24 billion, or about P1.2 trillion.
This and another $300-million World Bank loan expected to be approved on Dec. 21 will add to the country’s total outstanding debt, both external and domestic, which has already ballooned to P11.97 trillion as of end-October from P8.22 trillion as of end-2019, or prior to the pandemic.
Approved on Dec. 10 and to be administered by the Department of Finance (DOF), the $600-million fresh financing is a development policy loan (DPL) specifically for the “Philippines Promoting Competitiveness and Enhancing Resilience to Natural Disasters Sub-Program 3.”
It is aimed at supporting government reform programs designed to position the country “for a competitive and resilient economic recovery” from the adverse impact of the COVID-19 pandemic, according to the World Bank.
DPLs provide quick-disbursing assistance to countries undertaking reforms.
Retail trade
To be funded by the new loan, the third in a series of DPLs, are reform programs that include “amendments to the Retail Trade Liberalization Act to promote private investments, reduction in the cost of doing business, and expansion of broadband services to promote investments in information and communications technology,” the World Bank said in a statement on Saturday.
“These reforms are crucial in addressing immediate and long-term barriers to growth, paving the way for inclusive recovery,” World Bank country director for Brunei, Malaysia, the Philippines and Thailand Ndiamé Diop said.
As many Filipinos worked from home and schoolchildren turned to online learning amid the prolonged COVID-19 pandemic, Diop said “reforms that promote competition in broadband and mobile telecommunications will benefit a large portion of the underserved population by increasing coverage and quality of service, increasing their access to markets, and access to remote education and health services.”
Also, reforms that lower the costs of trade and improve the business environment are expected to benefit all firms but especially small and medium enterprises, which will have access to a larger market for their products and services, Diop added.
Foreign investments
The World Bank noted that in the East Asia and the Pacific region, the Philippines was a laggard in attracting foreign direct investments (FDIs), in general, and foreign retail players, in particular, due to the ceiling on foreign capital allowed in various economic sectors. Pending in Congress is a bill, certified by President Duterte as urgent, that seeks to amend the Retail Liberalization Act that will lower the capitalization requirement for foreign retailers to $500,000 from $2.5 million.
“Reforms in the retail trade sector is expected to promote investments by leveling the playing field between domestic and foreign operators, thus generating employment, widening consumer choices and increasing the inflow of new technologies,” the World Bank said.
The new World Bank loan will also sustain funding for the ongoing implementation of the Philippine Identification System (PhilSys), or the national ID.
“The government has introduced PhilSys as a digital identification platform to foster the digital economy and increase access to public services. This is expected to increase access to and improve delivery of public services by providing Filipinos with a unique, verifiable digital identity,” World Bank senior economist for the Philippines Rong Qian said.
Emergency financing
The other World Bank loan to be approved on Dec. 21 is the $300-million COVID-19 emergency second additional financing, mainly for booster shots.
This will bring the World Bank’s cumulative financing for this Department of Health (DOH)-administered project to $900 million, including the $100 million extended last year and the $500 million that was obtained last March.
Also for boosters and the expansion of the vaccination program, the government is expecting another $500 million in loans, or $250 million each, from the Asian Development Bank (ADB) and the China-led Asian Infrastructure and Investment Bank (AIIB). These multilateral lenders directly pay global vaccine suppliers for the doses ordered by the DOH.
Finance Secretary Carlos Dominguez III earlier said that of the P396 billion set aside in the proposed P5-trillion 2022 national budget, P45 billion in unprogrammed funds were to be spent on booster shots and that this would come mainly from borrowings.
Of the total external borrowings for COVID-19 response of $24 billion from March last year to present, $21 billion was injected into the national budget to finance bigger expenditures and address the budget gap, Dominguez said.
To date, $19.8 billion had already been disbursed to the government, he added.
Dominguez said most of the funds obtained from foreign sources had been spent on vaccines.
As to the remaining $2.4 billion in loans and grants from multilateral lenders and bilateral development partners, he said they were earmarked for specific COVID-19 response projects being implemented by the DOH, half of which had been disbursed. These projects include the procurement of laboratory equipment, medical supplies and vaccines.
To recall, a total of $1.2 billion in loans were extended by the World Bank, the ADB, and the AIIB to the Philippines in March for the nationwide mass vaccination program.
Due to the pandemic-induced recession last year which weakened revenue collections and jacked up public expenditures to fight COVID-19, the country’s end-2020 debt stock climbed to P10.25 trillion. Of the amount, P6.95 trillion was sourced locally, while P3.3 billion was borrowed from external sources. As of October this year, domestic debt still accounted for the bulk, or P8.47 trillion of the outstanding obligations, while foreign loans accounted for P3.5 billion.