THE Asian Development Bank (ADB) views the Philippines as capable of managing the risks of taking on significant amounts of foreign debt, amid warnings from the International Monetary Fund (IMF) that China is funding unsustainable projects in developing countries.
ADB Vice-President (Operations 2) Stephen P. Groff said at a briefing on the sidelines of the 51st ADB Annual Meetings that the Philippines’ macroeconomic fundamentals can take on the debt load offered by aid providers like China.
Asked whether the Philippines will be exposed to debt risk by participating in China’s Belt and Road Initiative (BRI), Mr. Groff said: “There aren’t any major concerns at the moment about debt sustainability in the Philippines.”
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“The Philippines has strong macroeconomic management, it has had strong macroeconomic management for quite a number of years now and that has put the country in a position to increase its borrowing to finance infrastructure investment, to finance human capital development,” he said.
IMF Managing Director Christine Lagarde has warned countries of potential “payment challenges” if they take up Chinese financing for unviable projects.
Mr. Groff said the key for both lender and borrower was transparency, clear conditions for the loan agreements, and projects that would boost growth and thus the borrower’s ability to pay.
Last year, Sri Lanka was unable to repay Chinese loans for Hambantota Port, and eventually handed it over on a 99-year lease.
China is seeking to revive the ancient Silk Road trade route by financing physical infrastructure projects that link Asia to Europe.
The ADB said it remains open to co-financing infrastructure projects with China as it recognizes the importance of regional connectivity that the BRI brings, which would enhance trade and investment flows.
“We feel that there’s a huge demand for infrastructure investment. We are certain we will not be investing in any project that doesn’t meet our standards, and that’s not to say that the BRI has no high-quality projects, but we do have very tight guidelines that we have to follow,” Mr. Groff said.
The Philippines last month signed a loan agreement with China for the P3.14-billion Chico River Pump Irrigation Project at 2% per annum with a maturity period of 20 years, inclusive of a seven-year grace period.
Both parties are also expected to sign this year loan agreements for the P10.86-billion Kaliwa Dam-New Centennial Water Source Project and the P151-billion Philippine National Railways-South Long Haul Railway.
Also among the projects being considered for Chinese funding are the P57.6-billion Subic-Clark Railway, the P25.63-billion Davao City expressway, and the P27.16-billion Panay-Guimaras-Negros Inter-Island Bridge.
China has pledged about $7.34 billion in soft loans and grants for the Philippines, according to the Department of Finance, to support the government’s P8.4-trillion medium-term infrastructure program.
Government debt hit a record P6.65 trillion in 2017, equivalent to 42.1% of gross domestic product (GDP). The government seeks to reduce the share of debt to 37.9% of GDP by 2022. — Elijah Joseph C. Tubayan

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