By Cai Ordinario, May 2 2019; Business Mirror

Image Credit to Business World

NADI, Fiji—As anxiety over falling into debt traps spreads among more countries in the region, the Asian Development Bank (ADB) has asserted that loans are still necessary to achieve high economic growth and address development constraints.

In a briefing on the sidelines of the 52nd ADB Annual Meeting here on Wednesday, ADB Chief Economist Yasuyuki Sawada said debts enable governments like those of the Philippines to increase public spending that boosts the economy and eliminates infrastructure bottlenecks.

Sawada said as long as debts remain sustainable, it is important to support these kinds of measures by governments to provide better infrastructure for their people.

“I think having debt per se and also continuing public investment is not necessarily a bad idea. But rather, as we can see, Philippine economy is nearly driven by—one of the main drivers is—public investment. So in that sense, I think as long as debt is sustainable, I think this is a very important government initiative we need to support,” Sawada said.

Sawada said institutions such as the International Monetary Fund (IMF) have developed a framework on debt sustainability.

This enables the Washington-based lender to determine whether a country’s debt sustainability is questionable or needs to be closely monitored.

He said the ADB follows the analysis of the IMF with regard to debt sustainability. The ADB Chief Economist said as long as the debts of a country are manageable, these debts are “not really a big concern.”

Economist Rene Ofreneo said the government has highlighted the fact that the country’s debt to GDP ratio declined to 42 percent from 75 percent in 2004. This, said the BusinessMirror columnist, has given the government the confidence that the country’s debt is sustainable.

Based on the latest report from the National Economic and Development Authority (Neda), the majority or 55 of the 75 flagship projects will be financed through Official Development Assistance (ODA). These projects amount to P1.97 trillion or 92.56 percent of the total amount for
the projects.

Japan, through the Japan International Cooperation Agency (Jica), provided the bulk of ODA assistance to the country, accounting for a 36-percent share worth $5.33 billion for 36 loans/grants of the active ODA portfolio, according to Neda’s ODA Portfolio Review in 2017.

This is followed by the World Bank with 21 percent or $3.07 billion for 26 loans/grants and ADB with 20 percent or $2.97 billion for 37 loans/grants.

Private-sector financing

Meanwhile, apart from ADB’s sovereign operations, Subramaniam expects the Build, Build, Build program to usher in more opportunities for the ADB to extend private sector financing to firms in the Philippines.

Subramaniam said currently ADB’s private-sector operations in the country still have a small “footprint” but are “quite catalytic.” He said some of the projects financed by ADB’s Private Sector Operations Department (PSOD) include the Mactan-Cebu airport, as well as support in green bond issuance for renewable power.

“Our private sector colleagues are anticipating that as the BBB program gains volume and traction, there could be a lot more financing, which will be beyond [what] the domestic financial sector would be able to service. So we are continuously looking at opportunities like, for example, in our education space, private sector is looking at getting in, supporting a series of institutions. We will be continuously looking for opportunities,” Subramaniam said.

ADB’s PSOD catalyzes, structures and funds investments in privately held and state-sponsored companies across a wide range of industry sectors throughout developing Asia.

The emphasis is on commercially viable transactions that generate financial returns while also delivering on ADB’s organization-wide mission to promote environmentally sustainable and inclusive economic growth.