Soft loans account for limited part of debt portfolio, DoF says

THE Department of Finance (DoF) said concessional loans account for only 10-15% of total borrowings, limiting any possible fallout from losing access to soft loans after the Philippines’ elevation to upper-middle income country (UMIC) status.

On the contrary, the Philippines’ reclassification to the  UMIC tier will expand its financing options, Finance Secretary Frederick D. Go told a media roundtable.

Concerns have been raised about the loss of access to soft loans after the World Bank shuffled the Philippines into a higher-income tier.

“There’s nothing for you to be worried about at least in the near term because we have to maintain our upper-middle income classification for at least three years before any change happens,” Mr. Go said.

“For the near term or at least for next three years no change, we’re not going to lose any grants, we’re not going to borrow at more expensive rates,” he added.

Mr. Go said that if UMIC status is maintained for the next three years, interest rates on concessional loans could increase by 10 to 20 basis points.

“As far as I’m concerned, nothing is changing with the multilateral and bilateral loans,” he said, noting that 70-80% of borrowing will continue to come from domestic sources and 20-30% from external sources through 2028.

In a separate interview on the Money Talks with Cathy Yang program, Mr. Go said that though sustaining UMIC status may eventually raise rates on concessional loans, the upgrade will also improve the country’s creditworthiness and broaden its access to financing.

“This means that the country can borrow at lower or better interest rates. And this is from the private sector, from private investors, from the retail market, from the banking industry,” he added.

Mr. Go said the improved credit profile would also support the country’s fiscal position by reducing borrowing costs.

“If our borrowing rate goes down, this means more savings for the country, which means our total loans will be controlled. It means less borrowing cost for us. So it will definitely help the short, medium, and long-term fiscal position,” he added.

Asked when these benefits could begin to materialize, Mr. Go said some gains may be felt early, although larger benefits would likely come if the Philippines sustains its UMIC status.

“You will probably see more of the gains after you’ve sustained it and continue to grow,” he added.

Asked whether the country’s new income classification will help it achieve an “A” sovereign credit rating by 2028, Mr. Go said it would depend on progress across several economic indicators.

“To get an A-rating … you’ll have to perform well on reforms, gross domestic product growth, the fiscal deficit, current account, among others,” Mr. Go said.

“We still have two years to go, let’s see if we can accomplish it … (UMIC status) is a contribution to the road to A-rating, but I can’t say it’s significant,” he added.

Mr. Go said achieving an A-rating would also depend on favorable global economic conditions, including lower oil prices. — Justine Irish D. Tabile