Gov’t eyes more diversified external financing before losing ODA perks

The Marcos administration will continue diversifying its sources of external borrowings to help bridge its budget deficit once the country reaches upper-middle income status and loses access to concessional financing.

To do that, the interagency Development Budget and Coordination Committee (DBCC) said in its latest “Fiscal Risk Statement 2025” that the government will “capitalize” on its investment grade credit rating to tap affordable financing “as a supplement to regular domestic funding operations.”

”As the country becomes less reliant on ODA (official development assistance) loans upon graduating to upper-middle income status, the NG (national government) aims to maintain its strong track record of reliable access to foreign currency-denominated market financing,” the DBCC said.

READ: Philippines’ ODA portfolio rises to $37.29B

Data showed ODA loans accounted for 14.5 percent of the state’s debt portfolio last year, giving the government a flexible financing option that carries cheaper rates and longer payment terms—including a grace period—compared to commercial borrowings.

That said, ODAs have been in the Philippines’ borrowing menu for years, as the country has been classified as a lower middle-income nation since 1987, reflecting the slow progress in expanding the economy in step with population growth.

But the country is bound to lose access to ODAs once it reaches the upper-middle income group. Secretary Arsenio Balisacan of the National Economic and Development Authority (Neda) said there’s a good chance that the country might transition to the next higher income bracket in 2025.

Should the country hit that goal next year, Neda said it had been assured by development partners that the government would still have access to ODAs until 2027.

“In fact, many of our current ODAs are long-term anyway,” Balisacan said.

“But again, we talked with our development partners, they tell us that there are other windows that could offer the same features as the window for lower-middle-income countries. This is probably the thing that we want to explore,” he added.

Minimal risks

As it is, the country would lose access to ODAs at a time when it is trying to bridge a budget gap that would unlikely go down to prepandemic level within the term of President Marcos.

The DBCC had set a P2.57-trillion borrowing program for this year to bridge a fiscal shortfall that is capped at P1.5 trillion, or equivalent to 5.7 percent of gross domestic product (GDP). The Marcos administration projects the deficit-to-GDP ratio to decline to 3.7 percent in 2028, still above the pre-COVID-19 level of 3.38 percent.

The DBCC said that while its revenue goals “seem unambitious and likely to be surpassed,” there’s still a “recurrent tendency” for tax collections to underperform. On the expenditure side, the Cabinet-level committee said a “notable shift toward overspending” also emerged after the pandemic.

But the DBCC said the fiscal risks “appear to be minimal.”.

“Overall budgetary balance outturns have veered close to targets in recent history,” they added.