Duterte Admin Eyeing Hybrid Financing for Big-Ticket Infra Projects–Dominguez

The Duterte administration is exploring hybrid financing arrangements that will combine development aid and loans in raising more funds for its big-ticket infrastructure projects while keeping down borrowing costs, Finance Secretary Carlos Dominguez III said. Dominguez said hybrid financing would enable the government “to profitably manage the leveraging” of close to P1 trillion in official development assistance (ODA) and loans that it has secured from Japan and China alone in just six months of the Duterte presidency.

“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.

Dominguez said hybrid financing would 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 would thus enable the government to build more big-ticket infrastructure projects, he 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,” he said.

As an example, South Korea has carried 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 had 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.

Dominguez said the Department of Finance (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. The commitments of investments and development assistance pledges by Japan and China to the Philippines are among the largest amounts announced by the two economic powerhouses for a single country, Dominguez said.

He said these unprecedented pledges of aid and investments by Japan of $9 billion and China of $24 billion “reflect the strong confidence of the international community in the Duterte administration’s capability to sustain the Philippines’ high growth path and realize its agenda for economic inclusion.” Dominguez said the record inflows from Tokyo and Beijing make up the initial investment dividend from President Duterte’s foreign policy rebalancing toward economic integration with ASEAN (Association of Southeast Asian Nations) member-states and major Asian trading partners China, Japan and South Korea.

He noted that these funding and investment commitments are the highest announced by Japan and China for a single beneficiary-country. Such commitments, Dominguez said, mirror the strong relations that the Philippines has with Japan and China. Dominguez said that Japanese Prime Minister Shinzo Abe’s pledge of a 1-trillion yen investment and development aid package is the largest that Japan has committed to one country. The JPY1-trillion pledge spread over five years, which is equivalent to about $9 billion or around P424 billion, was announced by Prime Minister Abe in his recent state visit to the Philippines.

In October last year, President Duterte reaped aid and investment pledges from Beijing worth $24 billion during his four-day state visit to China. Trade Secretary Ramon Lopez had announced that China will provide $9 billion in soft loans, including a $3 billion credit line with the Bank of China, while other economic deals including investments would amount to about $15 billion. Several private and multilateral institutions here and abroad are similarly bullish on the Philippines and are confident that it can sustain its high growth of above 6 percent and its status as one of Asia’s fastest growing economies, provided that the Duterte administration delivers on, among others, its commitment to accelerate spending on infrastructure.

These include the International Monetary Fund, World Bank, ADB, BMI Research-Fitch Ratings, S&P Global Ratings, Nomura, First Metro Investment Corp. (FMIC), Colliers International, Nordic Business Council of the Philippines (NBCP), Philippine Chamber of Commerce and Industry (PCCI), Employers’ Confederation of the Philippines (ECOP), Goldman Sachs, Bank of the Philippine Islands (BPI), Standard Chartered Bank, Hong Kong and Shanghai Banking Corp.

(HSBC), Sun Life Asset Management Co., AB Capital Securities, Lamudi PHL and the Management Association of the Philippines (MAP). Apart from ODA and loan financing, the DOF seeks to raise enough funds for its infrastructure buildup program by way of a Comprehensive Tax Reform Program (CTRP), the first package of which is now being studied by the respective Committees on Ways and Means of the Senate and the House of Representatives.

House ways and means chairperson Rep. Dakila Carl Cua has authored House Bill No. 4774, which is the CTRP’s Package One that aims to cut personal income tax rates while at the same time generating an extra P366 yearly for the government’s higher public spending strategy.

The Duterte administration needs to raise some P366 billion a year over the medium term, of which some P206.8 billion is expected to come from tax reform in the first full year of its implementation, for it to mount an unprecedented investment strategy that would finally put the Philippines on an “irreversible” path to high and inclusive growth. (DOF)