Philippine to fast-track borrowings from Japan

MANILA, Philippines — The Philippines is looking to fast-track the processing of loans from Japan before the expected increase in interest rates due to the country’s anticipated advancement into an upper-middle income economy, according to the Department of Finance (DOF).

In an interview, Finance Secretary Carlos Dominguez said interest rates for loans to the Philippines from Japan would increase two years after the country gains its upper-middle income economy status, which is expected to happen in 2020.

As such, he said the government is planning to expedite the negotiation of financing deals with Japan to take advantage of lower interest rates, which the country may not be able to enjoy anymore by 2022.

“Definitely, we will be fast tracking our drawdowns,” Dominguez said.

According to Dominguez, the interest rate differential once the two-year grace period lapses would only be about 50 basis points.

Nevertheless, he said it is only fair that Japan implements this kind of policy to give priority to countries who are more in need of funds at lower costs.

“It’s only fair to everybody. Money is scarce so they want to make sure that those who need it get more or those who can use it productively,” he said.

Earlier, Socioeconomic Planning Secretary Ernesto Pernia also said there may be a need to accelerate borrowings until such time that the country would no longer be qualified for low interest rates under Japan’s Special Terms on Economic Partnership (STEP) funding.

He said the government would prioritize securing funding support for high-cost infrastructure projects.

Pernia also noted that the country’s expected graduation into an upper-middle income economy was moved to 2020 from the original target of 2019, due to lower economic growth outlook for this year.

He attributed this to the delay in the passage of the 2019 budget, as well as headwinds being faced in the global economic landscape.

For 2019, the Development Budget Coordination Committee (DBCC) is projecting that the economy would grow at a range of six to 6.5 percent, narrower than the previous target of six to seven percent.

Just last week, Philippine officials, led by Dominguez, visited Hakone, Japan for the ninth high-level meeting of the Philippines-Japan Joint Committee on Infrastructure Development and Economic Cooperation.

During the discussions, Manila and Tokyo agreed to finalize the Y4.409 billion supplemental loan agreement for the Metro Manila Priority Seismic Bridge Improvement Project, as well as the additional financing deal for the ongoing Davao City Bypass Construction Project.

The DOF said the Japanese side reiterated its intention to provide funding support for the Cebu-Mactan Bridge and Coastal Road Construction Project.