The World Bank (WB) has reduced loan and guarantee charges for creditworthy developing countries such as the Philippines, a move seen as advantageous to the government’s fiscal position.
In a letter to Finance Secretary Margarito Teves, World Bank acting country director for the Philippines Maryse Gautier said the new pricing is available for all new International Bank for Reconstruction and Development (IBRD) loans on or after May 16, 2007.
Under the new terms, the price on IBRD’s main variable-spread and fixed-spread loan products has now been reduced and the complex fee structure has been replaced by a one time front-end fee of 25 basis points. This is equivalent to an average of four basis points per annum during the life of the loan.
Compared to the old pricing, on average the all-in cost savings for development policy loans is about 17 basis points and approximately 32 basis points for investment loans.
“This decision effectively returns loan pricings to the levels in effect prior to price increases in 1998,” Gautier said in her letter dated Oct. 2.
Gautier explained that the under the new terms, the pricing for development policy loans and investment loans is now the same with the elimination of the commitment fee.
Annual waivers have also been down away with, making funding costs more predictable, Gautier said.
The World Bank stressed, however, that the exact level of pricing will continue to vary since it continues to be determined by the actual cost of funding.
The multilateral agency also made the new terms more flexible by preserving all fixed spread loan (FSL) options to manage currency, interest rate, roll over and commodity price risks.
Finance Undersecretary Roberto Tan said the World Bank’s decision to simplify and reduce its loan charges is seen to reduce the costs of some of the country’s financial obligations.
“It will lower the cost of some of our loans to them,” Tan said.
He, however, noted that the Department of Finance has yet to determine how much the Philippines can save as well as the amount of the loans that would be covered by the new pricing scheme.
The World Bank is among the Philippines’ major creditors for infrastructure and policy loans.