The Philippines Department of Finance (DOF) has contracted a total of US$17.06 billion in affordable financing from external sources in 2020 for critical infrastructure projects and other priority programs, and for helping bridge, the wider fiscal deficit incurred last year because of the considerable state spending on COVID-19 response measures.
Spearheaded by its International Finance Group (IFG), the DOF secured firstly, US$7.73 billion or 45.3 percent of this amount from multilateral lenders. Secondly, US$2.86 billion (16.7 percent) from the Philippines’ bilateral partners. Lastly, US$6.47 billion (37.9 percent) from the commercial markets.
IFG head reports to DOF
The continued provision last year of program loans from the Philippines’ bilateral and multilateral partners is “a testament to the timely delivery of our key sectoral reforms,” said Finance Undersecretary Mark Dennis Joven in his report to Finance Secretary Carlos Dominguez III.
“Around US$15.44 billion is for the emergency requirements for our COVID-19 response. This amount is from the total external financing contracted in 2020. Other initiatives including ‘Build, Build, Build’ infrastructure projects will use the remaining US$1.62 billion,” said Joven, who heads the DOF-IFG.
Joven said the DOF contracted US$14.52 billion in budget support financing in 2020 to help cover the deficit of P1.38 trillion (US$27.81 billion or 7.6 percent of GDP or gross domestic product). This amount results from the expected reduced collections of revenue agencies and the massive spending requirements of COVID-19 response programs.
IFG successful negotiations
IFG successfully negotiated the remaining amount of US$2.54 billion in project loans to support the government’s key projects. These projects will be implemented over several years, beginning in 2020, Joven said.
Of the US$14.52 billion, firstly, a total of US$8.05 billion was in the form of Official Development Assistance (ODA) financing. Secondly, another US$6.47 billion is from raising funds in the overseas bond markets, Joven said.
Out of this US14.52 billion, the authorities have disbursed US$12.18 billion as of end-December 2020, he added.
“The amount of external financing contracted in 2020 increased by 75.43 percent year-on-year. This increase is due to higher emergency funding requirement in light of COVID-19. This also represents an overall 33-percent expansion of the external borrowing program from 2016 to 2020,” Joven said.
Joven said “With regards to securing financing from external sources. The DOF has always maintained its bias towards cheaper and multilateral loans.”
“The government has consistently availed debt for budget support. The government recognises that program loans and global bonds provide more flexibility in terms of utilisation,” he said.
Financing for grants and technical assistance
Aside from loans, the IFG also processed grants and technical assistance amounting to US$859.53 million last year. US$26.74 million of this amount is intended for COVID-19 response.
“In 2020, the IFG also facilitated the provision of various donations, such as testing kits, masks, personal protective equipment (PPEs), ventilators, face shields, and others, from China,” Joven said.
Also, the US$77.38 million Agreement on Economic and Technical Cooperation that the DOF signed recently with the China International Development Cooperation Agency (CIDCA) may be fully or partially used for the government’s COVID-19 response programs subject to discussions with the Chinese government, he said.
For 2021, Joven said the IFG is targeting to secure a total of US$23.71 billion in financing from external sources. This amount is to bridge the budget deficit and provide funds for priority projects.
Firstly, budget support purposes will contract US$8.06 billion (34 percent). Secondly, project financing will utilise the remaining US$15.65 billion (66 percent).
“We are planning to source a total of US$7.67 billion in loans and grants from multilateral institutions. Followed by US$10.54 billion from our bilateral partners; and raise US$5.5 billion from the commercial markets this year,” Joven said.
Visit the Philippines DOF website for the full report.