‘Blended financing’ could unlock private investment as fiscal resources dwindle
By Luisa Maria Jacinta C. Jocson, Reporter
LEGISLATION proposing a “blended financing” model will help the Philippines tap more private funding, giving it more financing flexibility after its own ability to invest in projects was weakened by the pandemic, analysts said.
“Flexible funding modalities allow other interested parties to engage in development projects in the Philippines. This allows bilateral and multilateral partners to limit their exposure in specific development projects and provide space for private sector participation,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in an e-mail.
“As long as there is transparency in the so-called blended financing approach, it could be a welcome development, as manifested if one of the objectives is to have flexibility in financing — which is advantageous to loan borrowers,” De La Salle University law and business professor Antonio A. Ligon added in a Viber message.
Albay Rep. Jose Ma. Clemente S. Salceda last week filed House Bill No. 7135, which proposes a blended financing model that allows for more diversified loan sources.
The model is defined as a “financing arrangement where the bilateral or multilateral partners mobilize funds from commercial or private financing institutions.”
It can be applied as long as the projects are covered by national or international official instruments in the nature of exchanges of notes, memoranda of understanding, or similar instruments.
The bill also seeks to reduce the official development assistance (ODA) grant component to 15% and remove the 40% requirement for the weighted average of the grant component of all ODA-funded initiatives.
According to the bill, current ODA guidelines under Republic Act No. 8182 “do not explicitly provide a mechanism for ODAs in the blended financing approach.”
“As such, similar financing arrangements could be subject to litigation, raising the risks of materially-adverse government action for such projects,” it added.
The bill also noted that these risks could also restrict bilateral partners, particularly those from Europe, and their ability to provide their expertise in many areas where cooperation could contribute to development.
Analysts said that the bill will attract more investors and speed up the completion of projects.
“ODA provides cheaper financing at much longer tenors and better terms such as grace periods, but greater flexibility though blended funding from commercial or private sources would improve flexibility in terms of more infrastructure projects being financed and rolled out, as well as completed at a shorter time period,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“Given the limited budget and financial resources of the government, more financing options and flexibility would be welcome,” he added.
However, Mr. Ridon noted that the blended financing model may not be immediately adopted.
“While providing this option opens wide-ranging opportunities to engage new development partners, we have yet to see whether blended funding modalities will be the norm in future projects. At present, ODAs are essentially vertically integrated endeavors, as funding partners typically originate development projects from conceptualization and feasibility determination to project construction, turnover and even maintenance,” he said.
Development partners may reject participation in projects if a major development partner is already leading various components of it, Mr. Ridon added.
“Public-private partnerships, in essence, are nothing new in the country, and with these projects come the benefit of likely faster execution, but also the potential downside of key public infrastructure in private hands, who will want to recoup their investment at some point, either initially or through the course of a long-term contract,” Pantheon Chief Emerging Asia Economist Miguel Chanco added in an e-mail.
At the end of December, around 44% or P1.663 trillion of external debt was contracted through ODA, according to the bill.
In 2021, the active ODA loan and grant portfolio of the Philippines was worth $32.24 billion, consisting of 107 loans and 297 grants.
This year, the National Government is expected to obtain around $19.1 billion worth of ODA, of which $9.2 billion in loans will come from multilateral development partners and $9.8 billion from bilateral lenders.