$10.9B extended to PH for COVID-19 response

MANILA, Philippines — The Philippines had been extended loans and grants totaling $10.94 billion (more than P529 billion) as of August to finance its fight against the health and socioeconomic crises arising from the coronavirus pandemic.

So far this year, the country obtained already half the $21.62 billion in additional official development assistance (ODA) it received in 2019, according to a report of the National Economic and Development Authority’s (Neda) ODA Portfolio Review 2019.

Neda said 16 loans and three grants were recent additions to the expanding ODA portfolio “in support of the government’s efforts to address the COVID-19 pandemic and to mitigate its economic impact.”

In a statement on Monday, acting Socioeconomic Planning Secretary Karl Kendrick Chua said the government needed to borrow more in 2020 to help fund emergency response, social protection programs and other related expenditures that would provide immediate relief to Filipinos affected by the COVID-19 pandemic.

According to 2021 budget documents, the government will borrow more than P3 trillion this year and a similar amount next year to finance the swelling budget deficit, as COVID-19 response-related expenses ballooned while tax and nontax revenues remained weak.

Three-fourths of the borrowings will come from the sale of government securities in the country. Offshore debt paper issuance and foreign loans will augment financing for the P4.5-trillion national budget in 2021.

As a result, the national government’s outstanding debt will jump to a record P10.16 trillion by the end of 2020 and to P11.98 trillion in 2021.

The surge in borrowings will jack up the debt-to-gross domestic product (GDP) ratio from 39.6 percent in 2019 to 53.9 percent by the end of 2020 and to 58.3 percent next year.

Chua told the Inquirer on Monday that it would be up to the Department of Finance (DOF) to determine if this would still be a good time to slap new or higher taxes amid a pandemic-induced recession.

ADB financing

As of last month, COVID-19-related borrowings included the following budgetary-support financing from the Asian Development Bank (ADB):

•$1.5-billion COVID-19 active response and expenditure support (CARES) program.

•$200-million social protection support project (second additional financing).

•$400-million support to capital market generated infrastructure financing (subprogram 1).

•$500-million expanded social assistance program.

For August alone, the ADB approved three loans for its host-country: $400-million competitive and inclusive agriculture development program (subprogram 1), $300-million inclusive finance development program (subprogram 2), and $125-million health system enhancement to address and limit (Heal) COVID-19 project.

From the World Bank, the Philippines borrowed $500 million in third disaster risk management development policy loan; $500 million in emergency COVID-19 response development policy loan; and $200 million in social welfare development and reform project 2 (additional financing).

WB loans

On top of these loans supporting the budget, the Philippines secured from the World Bank two project loans—$100 million for the COVID-19 emergency response project, as well as $370 million to support the parcelization of lands for individual titling (Split) project.

The Philippines also borrowed $750 million from the Asian Infrastructure Investment Bank, which cofinanced the ADB’s CARES program.

Among bilateral aid agencies, Agence Française de Développement extended $165.42 million for expanding private participation in infrastructure program (subprogram 2). This was on top of the $110.28 million for the inclusive finance development program (subprogram 1), both co-financed with the ADB.

Japan International Cooperation Agency extended $458.95 million in COVID-19 crisis response emergency support loan.

As for grants, there were three totaling $26.36 million: $3 million in COVID-19 emergency response project and $5 million in rapid emergency supplies provision from the ADB; and $18.36 million from the Japanese government to provide medical equipment to the Department of Health.

For 2020, the ADB will lend the Philippines a record $4.2 billion.

Far from overspending

The chair of the House ways and means panel said on Monday the Philippines remained in a fiscally sound position despite the fresh borrowings and grants.

Albay Rep. Joey Salceda said it was a good sign that the government was spending more in the low-interest environment.

“ODA loans tend to have very long maturity periods and very low interest rates. Given the low-interest global environment, we should be fine, even if we accumulate a deficit of more than 10 percent of GDP this year,” he told the Inquirer.

He said he would be more concerned if the government was spending too little as that would mean missed opportunities to make significant public investments despite low interest rates worldwide.

“Of course, the moral consideration is even more urgent. People are going hungry, and it would be immoral to let people suffer when our credit lines are open and cheap. As for our credit ratings, we are at no real risk of getting downgrades even if we increase deficit spending levels, as long as we can keep them manageable,” Salceda said.

Addressing concerns about how the money would be spent, the House leader noted that Congress had oversight powers, “and we will exercise those powers as the need arises.”

“Right now, we are very far from spending beyond our means,” he said. “The executive has been restrained as far as deficit spending is concerned.”

He said Neda acting Secretary Chua was correct “in principle.”

“We need to borrow more. If the details are amiss, we will exercise our oversight powers. But [with] amicable and productive relations between the economic managers and myself, … I can just ask them straight,” he said.

—With a report from DJ Yap