DoF confident China-backed projects will pay off

THE PHILIPPINES will sign its second loan agreement with China in July, the Department of Finance (DoF) said, adding that the Philippines is capable of meeting its obligations despite higher Chinese interest rates compared with other funds on offer.

Asked which projects will be up next for signing loan agreements with China, Finance Secretary Carlos G. Dominguez III told reporters that funding will go to the New Centennial Water Source-Kaliwa Dam project.

This is the second of three projects under the “first basket” of Chinafunded projects. The Philippines last month signed the first loan agreement with China for the P3.14-billion Chico River Pump Irrigation Project with an interest rate of 2% per annum and a maturity period of 20 years, inclusive of a seven-year grace period.

The financing agreement for the P151.3-billion North- South Railway Project ( NSRP) South Commuter Line, meanwhile, is expected to be signed in the third quarter.

The loan agreement signed with Japan for the P51- billion Metro Manila Subway Phase 1 has a 0.10% interest rate payable in 40 years with a 12-year grace period.

Mr. Dominguez said that loan rates from China are “higher than Japan,” but noted that Chinese loans are cheaper than the funds borrowed from the US in January, in the form of $2 billion worth of dollar-denominated bonds.

“It’s 2%, we can pay it. We borrowed at 3% in the US, why can’t we borrow 2% from China,” he said, while noting that Japan debt also involves third-currency exchange rate risk.

Asian Development Bank President Takehiko Nakao has warned countries participating in Chinafunded infrastructure projects under its Belt and Road Initiative against falling into a “debt trap” due to unsustainable borrowing.

Sri Lanka failed to repay China for loans taken on to build Hambantota port, which struggled to attract shipping traffic. As a result, it handed the port over on a 99-year lease in exchange for debt relief.

Mr. Dominguez, however, said that the Philippine projects funded by debt have better revenue-generating prospects.

“If you borrow money for projects that don’t already have underlying demand, there’s a chance that your estimates are going to be wrong and your revenue is not going to be enough. However, what are we borrowing for… we already have obvious demand and there are people willing to pay for that,” he said.

“People need that. We can pay for those projects we are financing with Chinese money.”

Mr. Dominguez described the Kaliwa Dam project as a “need” which is “long overdue.”

China has pledged about $7.34 billion in soft loans and grants to the government after the Philippines announced a China- centered foreign policy.

The projects being considered for Chinese funding include the P57.6billion Subic-Clark Railway, the P25.63billion Davao City expressway, and the P27.16-billion Panay- Guimaras-Negros Inter-Island Bridge.

“We have a very good credit standing, we don’t owe anybody any collateral and we are borrowing very prudently,” Mr. Dominguez said. —