Government may scrap some ODA projects

Despite a need for funds to finance critical development projects, the government may be forced to cancel some official development assistance (ODA) over the next two years until it can manage its budget deficit reliably.

The National Economic and Development Authority (NEDA) said some loan agreements have been placed under review, sometimes by the donors themselves who see the government‘s lack of capacity to absorb funding where it is needed the most.

According to a NEDA official, there would be loan cancellations wherever possible since most ODA funds require counterpart funding. With the Arroyo administration hard-pressed to contain its burgeoning budget deficit, no funds are forthcoming.

ODA funds are concessionary loans extended by multilateral and bilateral funding agencies and financial institutions. To ensure that the funds go to the projects and programs they were intended for, loan agreements usually contain provisions for government counterpart financing that would be reflected as an item in the national budget.

Aside from counterpart funding, government also has to pay commitment fees for these loans even if it has not actually begun to avail itself of the funds or started implementing the project.

Combined with the effects of accumulated commitment fees and other costs, the official said the overall cost of ODA-funded projects and programs inevitably increases. These costs overruns, the official explained, end up exerting more pressure on the budget than they actually alleviate.

The official said this has left government no choice but to cancel some of these loans to avoid paying commitment fees and earmarking government funds for counterpart funding.

However, the official said NEDA has not completed its house-cleaning exercise to determine exactly how much the government would have to meet this year in terms of commitment fees, counterpart funding and debt service for ODA-funded projects.

According to the official, there are some loans that could still be cancelled but most of them would still entail payment of commitment fees. He said the impact on the effort to reduce the budget deficit could be great defending on how much the government was willing to sacrifice.

The official said the balance lies between the need to contain the deficit to the point where it would have minimal impact on overall development. Since much of these ODA-funded projects were critical public investments that private sector would not have the capacity or inclination to finance, the short-term impact would be minimal, but the impact on long-term growth prospects would be significant and potentially disastrous.

Earlier, NEDA said ODA projects would not be spared from the ongoing rationalization of the national budget, projects that were ordinarily protected from the exigencies of the national budget since the funds come from external sources and not from internally-generated revenues.

NEDA said the government‘s budget deficit crisis had reach such a magnitude that even funding agencies and donor countries had to recognize the need to prioritize projects, especially those that require counter-part funding from the Philippine government.

It was mentioned that ODA donors are themselves supportive of the ongoing house cleaning exercise that would classify ODA projects depending on their importance, impact, efficiency and absorptive capacity.