ADB cautions members on debt sustainability

MANILA, Philippines — The head of the Asian Development Bank (ADB) urged its developing member countries to consider carefully their ability to sustain debt payments before committing to projects that fit into China’s Belt and Road Initiative in order to avoid being stuck in a debt trap. 

“If countries borrow too much for certain infrastructure (projects) without looking seriously at the viability and feasibility, there will be trouble in repayment,” said ADB president Takehiko Nakao in a briefing held during the 51st ADB Annual Meeting last week. “We should consider debt sustainability very carefully.” 

The Belt and Road Initiative is essentially a long-term strategy of China that seeks to link several countries in Asia and the Pacific, Africa, Middle East, and Europe in a trade and investment route by putting up connective infrastructure such as ports and railways. 

Several institutions, which include the International Monetary Fund (IMF), have raised red flags about the initiative which can aggravate the debt burden in countries already carrying a considerable amount of debt.

Stephen Groff, ADB vice-president for operations in East Asia, Southeast Asia, and the Pacific, said, however, that the Philippines is not confronted by debt sustainability issues as of the moment and is in the position to expand investments through borrowings.

“Specifically for the Philippines, we follow the IMF sustainability framework and there are no major concerns at the moment about debt sustainability in the Philippines. The Philippines has strong macroeconomic managers, has had strong macroeconomic managers for a few years now. And that puts the country in a position to expand its borrowing to finance infrastructure investments, to finance human capital development, to finance a number of things,” he said in a separate briefing.

“And in fact, we encourage countries with such fiscal positions to make investments. So we fully support the Philippine government’s priority on investments in infrastructure as well as investments in human capital. We don’t have any concerns on that (debt sustainability) at the moment,” he said.

Groff said, however, that the Philippine government should be transparent about the loan agreements it enters into.

“As far as what president Nakao said, yes, broadly, we definitely advocate a lot for transparency around debt governments are carrying – transparency about the conditions. It is important for ensuring that those funds are invested properly in a way that will drive economic growth in such a way that countries are in a position to repay those borrowings and also making sure that you are getting the best out of it in how you are investing those funds,” he said.