Loans

PH to front-load cheaper ODA loans in 2022

PH to front-load cheaper ODA loans in 2022
Written by Publishing Team

With commercial borrowing rates expected to rise next year, the Philippines is looking at getting more foreign funding requirements from low-interest official development assistance (ODA) from overseas bond issuances, a finance ministry official said.

“We don’t divide our borrowing program into ODA and trade, but in general, we go through multilateral ODA first, bilateral ODA, and then commercial borrowing,” said Under Secretary of Finance Mark Dennis Goffin.

This procedure “reduces the total financing cost and extends the term [debt] purse,” Goffin explained.

Among the record pile of $11.97 trillion in national government debt as of the end of October, the bulk of the outstanding obligations will mature after more than a decade. About 7.76 trillion pounds, or 64.8 per cent of the debt, has long maturities.

Budget documents show that the national government is programmed to borrow a total of 2.47 trillion pesos next year, of which 560.6 billion pesos foreign loans will make up 23 percent of the total.

The external financing program planned for the coming year included 126.7 billion pesos in program loans, which are usually injected into the national budget; 80.4 billion pounds project loans; The bulk of bonds and other inflows is 353.5 billion pesos.

Amid the COVID-19 pandemic, the Philippines has issued global dollar-denominated bonds, yen-denominated samurai bonds, as well as Eurobonds to fund the ballooning budget deficit. It has not raised funds from Panda’s yuan bonds over the past two years despite issuances in 2018 and 2019.

Goffin said the Philippines entered into international bonds with its opening of external commercial borrowing in 2020 and 2021 due to low interest rates as well as strong demand.

“For 2022 we have to take into account that there is a global change in the benchmark rate. From Libor, it will be broken down into different benchmark rates. I think this could lead to some instability in the interest rate market in the near term,” Goffin said.

“That’s why we came prepared. You see, we have a buffer on the multilateral ODA side just in case the market fluctuates a bit.”

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