MANILA – The Duterte administration may have tapped official development assistance (ODA) loans to help fund its massive infrastructure program but this does not mean that the government will be jumping into a bottomless pit.
“We’re not falling into a debt trap (because) number one, we’re very careful on the way we choose projects,” Department of Budget and Management (DBM) Secretary Benjamin Diokno said Wednesday.
In a briefing, the Budget and Management chief said the 75 priority infrastructure projects under the “Build, Build, Build” program have been rigorously screened by the National Economic and Development Authority (NEDA).
He added that if the project is for transportation "it has to go through a review.”
“Our rule of thumb is if the economic internal rate of return is 10 percent or higher, it's a go. We will consider it. But if it's below 10 percent, it's a no. Under no condition are we going to finance a project that is because it is in the hometown of the President. Because that happens in other countries. We're very careful with that,” he said.
To date, among the projects that the government has secured ODA is the Metro Manila Subway Project, which will be funded by a 40-year loan, with a 12-year grace period, from the Japan International Cooperation Agency (JICA).
The loan has an interest rate of 0.10 percent per annum for non-consulting services, and 0.01 percent per annum for consulting services.
The loan agreement, signed by officials of the Department of Finance (DOF) and JICA on March 16, 2018, involves the aid amounting to 104.53 billion yen, which is the first of three to four-tranche loan.
The first phase of the subway project has an estimated cost of about 788.89 billion yen and 73 percent of which, amounting to 573.73 billion yen, will be funded by JICA. The balance of the financing requirement will be shouldered by the Philippine government.
Diokno said that since interest of the loan is low “that's clearly to our advantage.”
He said some projects in the priority list have economic internal rates of return of more than 20 percent “so we're very, very careful.”
Another factor why the country cannot be considered to be falling into a debt trap is because of the low ratio of debt to gross domestic product (GDP), which, he said, is currently around 40 percent.
“And our foreign debt is only one third of our total debt so that's the other thing. So we're okay. We're not going to fall into a debt trap as feared by some people,” he added.
Data from the Bureau of the Treasury (BTr) showed that the national government’s outstanding debt as of end-July 2018 amounted to PHP7.043 trillion.
Of the total, debt from on-shore creditors is about 65.3 percent amounting to PHP4.6 trillion while foreign debt accounts for 34.68 percent or PHP2.443 trillion. (PNA)