BEIJING—Finance Secretary Carlos Dominguez III has welcomed a proposal by the Asian Infrastructure Investment Bank (AIIB) to explore the possibility of local currency financing and a variable spread facility in providing loans to help fund the “Build, Build, Build” program of the Duterte administration.
According to Dominguez, the AIIB is also eyeing possible co-financing arrangements with other multilateral institutions in implementing big-ticket infrastructure projects under the “Build, Build, Build” initiative.
In a meeting at the AIIB Headquarters here last week, top officials of the Bank led by its president Jin Liqun also assured Philippine officials that the AIIB will focus on “the actual work” in implementing infrastructure projects to ensure that they get completed on schedule without any hidden or added costs, Dominguez said.
Dominguez led a group of Philippine officials that included Socioeconomic Planning Secretary Ernesto Pernia, Budget Secretary Benjamin Diokno and Philippine Ambassador to China Jose Santiago Sta. Romana in discussing possible financing approaches for the government’s centerpiece infrastructure program.
“We are quite sensitive to interest rates. Although they may seem small amounts, we do not want to reverse the trend of lowering our spreads. So it is very encouraging that you are considering variable spreads (over the LIBOR facility). I was hoping for an update on it. We are happy about the local currency bonds as well,” Dominguez told AIIB officials during the meeting. LIBOR stands for the London Inter Bank Offered Rate, the benchmark reference rate used for debt instruments.
Jin said the AIIB is highly responsive to the needs of its borrowers, which is why it is willing to study flexible financing schemes in extending loans for infrastructure projects.
“We explore other possibilities and we are looking at the possibility of variable interest rate, we are looking at the possibility of local currency financing,” Jin said.
Dominguez said the Philippines now has a lot of headroom in funding its massive infrastructure program through various financing arrangements, following the passage and implementation of the first package of President Duterte’s comprehensive tax reform program (CTRP), which, complemented with improvements in tax administration, substantially increased revenue collections for the first seven months of this year.
He also cited the reforms in the budgeting system now being put in place by Secretary Diokno to ensure that public funds are well spent, and the Philippines’ decreasing debt-to-GDP ratio of which foreign obligations now account for only 23 percent of GDP.
Dominguez said the country’s current debt-to-GDP ratio of 42 percent is expected to decline further to 38 percent by 2022.
The AIIB’s first project with the Philippines, which was approved on Sept. 27, 2017 is the $500-million Metro Manila Flood Management Project, which it is co-financing with the World Bank.
This flood control project involves the construction of new pumping stations and modernizing existing ones along with their supporting infrastructure, by improving solid waste management practices within the vicinity of drainage systems served by the selected pumping stations, and by supporting the resettlement of affected families.
It will focus on about 56 potentially critical drainage areas with an approximate land area of 11,100 hectares or over 17 percent of the total area of Metro Manila. This will include an area with a total population of about 970,000 people or about 210,000 households.
The AIIB has also shortlisted several Philippine projects, including the Pasacao-Balatan Tourism Coastal Highway, and the Camarines Sur Expressway for possible financing.
Earlier, the Philippine delegation met separately with China’s State Councilor and Foreign Minister Wang Yi, Commerce Minister Zhong Shan to discuss the progress of the Duterte administration’s flagship infrastructure projects and ways to swiftly address challenges in their implementation. The delegation also met with Vice Premier Hu Chunhua who underscored the need further strengthen bilateral relations with the Philippines through enhanced cooperation in the areas of trade, investment and people-to-people exchanges.