‘Philippines not in danger of falling into China debt trap’

NADI – As long as global best practices in lending are followed and debts are sustainable, the Philippines is in no danger of falling into a debt trap over its increasing Chinese loans, according to a top official of the Asian Development Bank (ADB). 

ADB chief economist Yasuyuki Sawada also told a press briefing in this Fijian city yesterday that the upcoming midterm elections would not create political instability that might pose risks to Philippine development efforts.

The ADB is projecting gross domestic product (GDP) growth of 6.4 percent for the Philippines this year and next – an improvement from 2018, when GDP growth slowed down to 6.2 percent from 6.7 in 2017. 

Inflation, which spiked to 5.2 percent last year amid a weaker currency, soaring rice prices, the fuel excise tax and other revenue reforms, is also projected by the ADB to ease to a manageable 3.8 percent this year.

Concerns have been raised that the Philippines under President Duterte is relying heavily on Chinese loans and leading the country into a debt trap.

Sawada, however, told The STAR here that the Philippines needs to fill an investment gap in infrastructure to implement Duterte’s ambitious Build Build Build program.

It is not unusual to turn to the world’s second largest economy, which has also become one of the biggest sources of official development assistance (ODA), to provide part of the financing, Sawada said.

The ADB is watching the progress of China-funded projects in the Philippines, but Sawada noted that it’s still too early to tell if there are valid concerns about the debt trap. 

“So far, we don’t see any big problem materializing in the Philippines,” he told The STAR.

At the press briefing, Sawada said for developing countries, “having debt per se is not necessarily a bad idea… having debt itself is rather welcome.”

Overall, he said the debt-to-GDP ratio among the 45 developing countries in the Asia-Pacific tracked by the ADB remains sustainable, including public debt.

China has fended off criticism that it has led beneficiaries of its ODA into a debt trap. While the country is not a member of the Organization for Economic Cooperation and Development, the OECD is cooperating with China on sustainable lending practices.

Also at the press briefing, Sawada said the Philippines remains one of the fastest growing economies in the Asia-Pacific. The country has been less vulnerable to the adverse impact of the prolonged US-China trade war and generally more resistant to other external shocks.

“The economic structure of the Philippines seems to be rather robust,” Sawada said.

The ADB considers the US-China feud the biggest risk to growth in the Asia-Pacific this year. While the actual overall impact is still “rather small,” Sawada said the feud is causing prolonged uncertainty. He noted that with the private sector adopting a wait-and-see attitude, investments and production are affected.

Meanwhile, natural disasters including typhoons and earthquakes as well as health-related disasters such as disease outbreaks pose medium-term risks to regional growth. Sawada noted that four of every five persons affected by natural disasters in the world live in Asia.

The ADB sees GDP overall growth in 45 of its 46 member-developing countries slightly moderating to 5.7 percent this year and 5.6 percent in 2020. Chinese economic growth is decelerating while India is seen growing further, with South Asia the fastest growing sub-region.

Within the area covered by the ADB, inflation is projected to be stable this year. The region continues to account for over 60 percent of global economic growth.

The ADB is holding its 52nd Board of Governors meeting in this city this week – the first time that the annual gathering is being held in a Pacific island state.