On top of its intensified revenue collection and investment promotion efforts, the government is exploring hybrid-financing arrangements that will combine development aid and loans to fund its big-ticket infrastructure projects while keeping down borrowing costs, the Department of Finance (DoF) said.
In a statement over the weekend, Finance Secretary Carlos Dominguez 3rd said hybrid financing would enable the government “to profitably manage the leveraging” of close to P1 trillion in official development assistance (ODA) and loans the Philippines has secured from Japan and China.
“Our major plan here is to leverage that. [That is], to take projects and then use part-ODA and part-multilateral agency loans so that we can actually increase the number of projects that we can do,” Dominguez said in the statement.
Hybrid financing will involve, for instance, a mix of ODA, which provides concessional interest rates of 0.2 to 0.5 percent, with development funds from the Asian Development Bank (ADB) and the World Bank to execute an infrastructure project.
Combining both types of financing sources will, thus, enable the government to build more big-ticket infrastructure projects, the finance secretary said.
“That’s like putting a jigsaw puzzle together using ODA from China and matching that with AIIB (Asian Infrastructure Investment Bank) and ADB funds. So we can be creative in those ways,” Dominguez said.
As an example, the DoF cited South Korea’s move to carry out a hybrid financing arrangement in helping fund the development of the Laguindingan Airport in Misamis Oriental during the previous administration.
For that airport project, the Korean government provided a total of $100 million through a combination of loans from the Korea Economic Development Cooperation Fund (EDCF) and an export loan from Korea Eximbank, it added.
Dominguez said the DoF is eyeing a similar financing arrangement in funding two major infrastructure projects—the EDSA Bus Rapid Transit (BRT) project and the Metro Manila flood control project.
The BRT, which is supported by the ADB, and the Metro Manila flood control project, which is being backed by the World Bank, have both been presented to the China-led AIIB for possible financing.
Tapping 100M yuan grant from China
The Philippines will also tap the 100-million yuan (equivalent to $15 million) grant from China for the establishment of drug rehabilitation facilities and the acquisition of law enforcement equipment, the DoF said.
The 100-million yuan grant is part of the Agreement on Economic and Technical Cooperation signed between the Philippines and China in October last year, which the DoF said can be tapped to implement projects for “anti-illegal drugs and law enforcement security cooperation.”
The Department of Health (DoH) has requested that half of the 100-million yuan be used for building drug rehabilitation centers, Dominguez said.
“During our meeting with Chinese Commerce Ministry officials, we noted the progress in our bilateral dialogue mechanisms and cooperation arrangements. We expect to see more bilateral consultations in the coming months,” he said, referring to the two-day Philippine mission to China earlier last week.
“We have also confirmed our intention to avail of the 50 million-yuan grant for the provision of drug rehab facilities for the DoH during our meeting with China Commerce Minister Gao Hucheng,” he added.
The remaining half of the grant is intended for procuring additional law enforcement equipment for the Philippine National Police and the Philippine Drug Enforcement Agency to strengthen the government’s war against the drug scourge, Dominguez said.
Besides drug rehab facilities, the DoF chief said the Philippine delegation has also asked Chinese officials to consider supporting, through grant financing, the construction of health centers in rural areas, particularly in the Autonomous Region in Muslim Mindanao (ARMM).
“The Chinese side has already begun a preliminary feasibility study on the drug rehabilitation center and plans to send an expert team to the Philippines,” he added.