China wants 3% interest on Philippines railway projects loan

MANILA, Philippines — China wants to charge an interest rate of three percent for loans sought by the Philippines to build three railway projects, a level that could be too costly for an economy trying to slash its national debt.

Transportation Undersecretary Cesar Chavez yesterday said the infrastructure team was told to reactivate negotiations with China for the financing of three railway projects – two in Luzon, one in Mindanao – estimated to cost at least P276 billion.

However, former finance secretary Carlos Dominguez III warned Chavez that China would ask for more than three percent in interest for the loans for bankrolling the new railways.

Dominguez said that when he was finance chief he terminated the application for financing because Beijing failed to act on the documents filed by the Philippines.

He said the interest rate China wants to impose is above the rate offered by alternative financiers like Japan.

“I canceled application instead of keeping it in suspended animation. If you wish to pursue this, I understand that the Chinese financing agency will be asking for interest rates in excess of three percent,” Dominguez said in a text message to Chavez shown to reporters.

Chavez said Japan’s offer of loan with an interest of as low as 0.1 percent has prompted the government to ask China to lower its rate to a competitive level.

Aside from re-engaging China for the project, Chavez said President Marcos has instructed economic managers to look into the option of soliciting proposals from the private sector, especially for the P50-billion Subic-Clark Railway Project and the P83-billion Mindanao Railway Phase 1.

However, the transport official said no private firm appears interested in financing the P142-billion Philippine National Railways Bicol Package 1 being eyed to connect Laguna to Albay.

The President has directed the economic team to consider only official development assistance and public-private partnerships. According to Chavez, delivering the projects through public funds is no longer on the table, as the government aims to consolidate its finances to bring down the budget deficit and the debt pile.

Under the Marcos administration, the government hopes to cut the budget gap to three percent of gross domestic product (GDP) by 2028, from a record 8.6 percent last year.

It also wants to moderate its borrowings to pull the debt-to-GDP ratio to 52.5 percent by the end of its term.

In spite of this, the government will keep its infrastructure spending at a range of five percent to six percent until 2028 to finish the public works initiated by the previous administration.

The Marcos administration eyes to tap the private sector for financing, as against the Duterte strategy of relying on foreign loans and grants for funding projects.