Government to tap more ODA to bridge budget gap, increase spending

Sep 2006
Philippines , September, 26 2006 - The Philippines plans to double its borrowings from foreign providers of official development assistance (ODA) to bridge its programmed budget gap and fund social service expenditures and policy reforms next year, finance department sources said.

The country expects to post a fiscal deficit of P63 billion next year, even as it reduces its foreign commercial borrowings and lean toward ODA due to lower interest rates.

According to Department of Finance data, the government would borrow about $525 million, or P27.825 billion, from various international funding agencies, a big leap from the $250 million programmed for 2006 and the $186 million in actual loans last year.

Of the total amount, $400 million would be borrowed from the Asian Development Bank (ADB), with $100 million to be spent on the health sector, $200 million on the power sector and another $100 million as co-financed development policy loan.

For this year, the government plans to borrow from the ADB only $80 million, mainly to benefit a state-sponsored microfinance development program.

Borrowings from the World Bank, however, would go down from $150 million this year to $25 million next year, with next year’s ODA earmarked for basic education ($15 million) and health reform ($10 million).

The government also plans to borrow $100 million from the Japan Bank for International Cooperation in the form of a co-financed development policy loan.

The government’s total outstanding public debt at end-2005 stood at P5.1 trillion, which was 93.4 percent of the country’s economic output. The debt-to-gross domestic product (GDP) ratio decreased from the 109 percent posted at end-2004.

Finance department data showed the total public-sector domestic debt amounted to P1.7 trillion, or 2.1 percent higher than the previous year, while the foreign component of P3.3 trillion was 7.5 percent lower.

In line with its prudent fiscal management, the government plans to contract its consolidated public-sector debt to P80.8 billion, or 1.2 percent of GDP from P128.1 billion, or 2.1 percent previously.

The same DOF data showed that government-owned and -controlled corporations would incur some P55.5 billion in deficit, or P7.7 billion higher than the 2006 ceiling due to higher capital spending and higher interest expense.

Government financial institutions—which include government-owned banks like Land Bank of the Philippines and the Development Bank of the Philippines, are expected to contribute a programmed surplus of P6.5 billion.

Social security institutions, which include the Government Service Insurance System, the Social Security System and PhilHealth, are expected to have a combined surplus of P34.1 billion.

Local governments are also projected to register a surplus of P4.1 billion.

To arrive at these projections, the finance department used the Development and Budget Coordinating Committee’s (DBCC) assumptions that the nominal GDP growth would be at 11.36 percent while the real GDP growth would hit 5.7 percent.

The interagency DBCC also forecasts inflation would go down to 4.3 percent compared to the 2006 assumption of 6.9 percent and the interest rate is assumed to go down to 4.9 percent compared to this year’s projection of 6.4 percent.

The peso would be at P53.5 against the dollar with imports growing at a rate of 12 percent and exports at 10.4 percent, both of which are higher than the 2006 projections. Crude oil is projected to cost $67.05 a barrel.

Source : ABC-CBN

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