Borrowing shift shields Philippines from higher interest rates

MANILA, Philippines - The Duterte administration’s shift in borrowing strategy to more foreign loans would shield the government from the effects of higher interest rates, National Treasurer Roberto Tan said yesterday.

“That’s one of the benefits of a modest level of international commercial borrowing,” Tan said in a text message when asked if more loans will help temper the effects of higher rates.

The government borrows from local and foreign financial markets to finance its budget deficit and pay existing debts.

For next year, 80 percent or P102.26 billion of the P126.26-billion gross foreign borrowings will come in the form of concessional loans, also called official development assistance (ODA), from various countries and multilateral institutions.

This was a departure from previous practice of commercial borrowing through foreign bonds. As of August, 61.5 percent of existing loans are in the form of securities, data showed.

With the US expected to hike rates by December, Tan said having more concessional loans than bonds is preferable since the former are cheaper.

According to Treasury data, existing ODA has a weighted average rate of 1.54 percent for the first eight months, much lower than foreign bonds’ 6.31 percent.

“Our actual borrowing level will be guided by the revenue and expenditure behavior moving forward,” Tan said.

While concessional loans have lower rates, they are usually tied up to conditions of lending entities.

Tan earlier said there were no changes as to these even after President Duterte’s tirades against the US, European Union and the United Nations, some of the Philippines’ biggest lenders.

As for China loans secured last week, he echoed the Department of Finance (DOF) in saying that they will be scrutinized carefully.

“All proposed foreign- or ODA-financed projects need to go through the NEDA-ICC process for project identification, evaluation and approval,” he said.

The Investment Coordination Committee of the National Economic and Development Authority, led by DOF, approves big-ticket projects.