DoF confident China-backed projects will pay off

The Philippines will sign its second loan agreement with China in July, the Department of Finance (DoF) said, adding that the Philippines is capable of meeting its obligations despite higher Chinese interest rates compared with other funds on offer.

Asked which projects will be up next for signing loan agreements with China, Finance Secretary Carlos G. Dominguez III told reporters that funding will go to the New Centennial Water Source-Kaliwa Dam project.

This is the second of three projects under the “first basket” of China-funded projects. The Philippines last month signed the first loan agreement with China for the Php3.14-billion Chico River Pump Irrigation Project with an interest rate of 2% per annum and a maturity period of 20 years, inclusive of a seven-year grace period.

The financing agreement for the Php151.3-billion North-South Railway Project (NSRP) South Commuter Line, meanwhile, is expected to be signed in the third quarter. The loan agreement signed with Japan for the Php51-billion Metro Manila Subway Phase 1 has a 0.10% interest rate payable in 40 years with a 12-year grace period.

Dominguez said that loan rates from China are “higher than Japan,” but noted that Chinese loans are cheaper than the funds borrowed from the US in January, in the form of $2 billion worth of dollar-denominated bonds.

“It’s 2%, we can pay it. We borrowed at 3% in the US, why can’t we borrow 2% from China,” he said, while noting that Japan debt also involves third-currency exchange rate risk.

Asian Development Bank President Takehiko Nakao has warned countries participating in China-funded infrastructure projects under its Belt and Road Initiative against falling into a “debt trap” due to unsustainable borrowing.