MANILA, Philippines — The Philippines’ anticipated promotion to an upper-middle income economy may mean higher borrowing costs, the Department of Finance (DOF) said over the weekend.
Quoting Finance Secretary Carlos Dominguez, the DOF said the country’s forthcoming upper middle income status means it would no longer be qualified for preferential rates offered by some development institutions to low-income and lower-middle income economies.
“Our cost of money is going to be higher because we will no longer qualify for the lower interest rates for poorer countries,” Dominguez said.
The DOF cited, for instance, Japan’s Special Terms for Economic Partnership (STEP) facility, which grants lower interest rates and fixed terms for official development assistance (ODA) loans to low-income countries.
The agency said lower-middle income countries like the Philippines do not qualify for STEP rates, but may be granted preferential terms with higher interest rates. Upper-middle income countries are imposed with even higher rates.
Considering this, the DOF said the government had to act fast before the cost of borrowing money increases.
The agency said the government took advantage of the opportunity to borrow at low, concessional rates by frontloading its borrowings and diversifying their sources to jumpstart its ambitious Build Build Build infrastructure modernization program.
The DOF, however, said this opportunity was missed by the past administration because of its failure to borrow funds. As a result, the past administration was not able to close the country’s infrastructure gap.
“From 2010 to 2016, the cost of money around the world was near zero. That was the best time to borrow, and we did not borrow,” Dominguez said. “They were not aggressive enough to fund projects when costs were really, really low.”
Dominguez said when the Duterte administration took over, “borrowings costs have gone up because the economic environment has changed. They are still low compared to historical levels, but not as low as they were from 2010 to 2016.”
According to the finance chief, borrowing money is “not bad” if funds would be invested in strategic projects that would generate massive returns to people.
“Now, if we borrow and invest it in projects that don’t make a return, then that’s really very bad,” he said. “Among the projects that we are investing in is better education. So a better education has a tremendous return to the economy. Also, better healthcare for Filipinos not only for their personal benefit, but also for their ability to contribute to the growth of our country and of course, in infrastructure.”
He also said the gauge to determine if the national debt is manageable is to measure it as a percentage of GDP or an economy’s ability to grow.
“If we are not growing and borrowing, that’s really bad. But because we are growing, we have the ability to borrow more because we have the productive capacity to pay more,” Dominguez said.
During the Arroyo administration, the Philippines’ debt-to-GDP ratio was at 75 percent, which went down to around 55 percent during the Aquino administration.
This continued to decline to 41.9 percent in 2018 under the Duterte administration, and is expected to further decrease to 38.6 percent by 2022.