At a briefing on the sidelines of the 51st Asian Development Bank (ADB) Annual Meetings early this month, ADB Vice President (Operations 2) Stephen P. Groff said the Philippines has strong macroeconomic fundamenals that will enable it to take the debt load offered by aid providers like China.
“There aren’t any major concerns at the moment about debt sustainability in the Philippines,” he said. “It has had strong macroeconomic management for a number of years now and that has put the country in a position to increase its borrowing to finance infrastructure investment to finance human capital development.”
The ADB official issued his statement in the wake of a warning issued by International Monetary Fund Managing Director Chistine Lagarde that countries face potential “payment challenges” if they take up Chinese financing for unviable projects.
Groff’s statement on the strong Philippine economy should also answer some local critics of the Duterte administration who fear we are depending too much on China for loans to finance several major projects. These loans, these critics say, could compromise the counry’s natural resources as collateral and could sink the nation in debt, like Sri Lanka. Last year, Sri Lanka ws unable to repay Chinese loans for its Hambantota Port and later handed it over on a 99-year lease.
Under President Duterte’s policy of cooperation with China – rather than a policy of confrontation over our conflicting claims in the South China Sea – the Philippines has lined up several projects with Chinese loan assistance. It signed last month a loan agreement for a P3.14-billion Chico River Pump Irrigation Project.
Expected to be signed soon are Chinese funding for a P10.86-billion Kaliwa Dam-New Centennial Water Source Project and a P151-billion Philippine National Railways-South Long-Haul Railway. Also planned are a P57.6-billion Subic-Clark Railway, a P25.6-billion Davao City Expressway, and a P27-billion Panay-Guimaras-Negros Interisland Bridge. China has pledged about $7.34 billion in soft loans and grants to support the Philippines P8.4-trillion infrastructure program.
Ultimately, all loans – whether Chinese, Japanese, American, or European – can be either dissipated or put to productive use, depending on the government officials and institutions handling them. If corruption enters the picture, then any loan funds will be lost and the project will be a failure. A great deal, therefore, depends on the administration which, thus far, has shown a readiness to remove officials linked to irregular transactions.
As for fears that the Philippines may be taking on too much foreign debt, including those which China has extended and offered for President Duterte’s ambitious economic development program, we share the confidence voiced by ADB Vice President Groff that the Philippines macroeconomic fundamentals are strong and we will be able to manage well the loans we need to undertake this development program.