Research group IBON calls on lawmakers deliberating on the budget for the controversial Conditional Cash Transfer (CCT) Program to look into the resulting additional debt burden that Filipinos will shoulder to repay the program’s loans.
Depending on interest rate trends, initial IBON estimates are that the Philippines total loan service for the World Bank and Asian Development Bank (ADB) loans for the CCT program could reach at least US$1.007 billion (Php44.31 billion at current exchange rates). This includes US$202 million (Php8.9 billion) in projected interest payments – US$94.6 million to the World Bank and US$107.4 million to the ADB. These already include a US$1,012,500 front-end fee (a percentage payable once usually at the loan signing) to the World Bank, although more than US$1 million in commitment charges (annual percentage fee usually paid quarterly) to the ADB are not yet covered.
The US$400-million ADB loan is to be repaid over 25 years with a grace period of 5 years when the principal does not yet have to be repaid. The US$405 million-World Bank, on the other hand is also repaid over 20 years but with a 10-year grace period.
Interest rate charges are computed as LIBOR plus 0.30% in the case of the ADB loan and LIBOR plus 0.17% in the case of the WB loan, in line with their respective loan agreements. The LIBOR in turn is the 6-month USD rate pegged at the current 0.44% until 2015 and estimated at 1.0% from 2015-2019, 1.5% from 2020-2024, 2.0% from 2025-2029, and 2.5% from 2030-2035.
These are even conservative projections, the research group said. The current 0.44% interest rate for instance is down from 1.6% at the start of 2009, 3.8% at the start of 2008, and 5.4% in 2007; LIBOR reached over 6% in 2000, over 8% in 1990, and even over 9% in the late 1980s.
Any future devaluations of the peso against the US dollar would also further increase the burden of the loan in peso terms. IBON notes that interest rates are down because of the global crisis. As the global economy gets better, the irony is that the loan burden gets heavier in the same way as the dollar strengthens, the group added.
The increased indebtedness that the CCT program will impose on Filipino taxpayers is further argument against the supposed benefits of the program. The CCT, as argued by many critics, is a dole-out program that brings insignificant impact on genuine poverty eradication but comes at the cost of a heavier debt burden for Filipinos.
IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.