CEBU, Philippines - Despite the Department of Budget and Finance’s adverse opinion on the Cebu City government’s debt cap, Mayor Michael Rama will pursue another loan.
“Of course we should not stop whatever will be available means that will in effect bring additional reprieve and relief. Why not?” Rama said, referring to the intention to have another loan to pay off the P3 billion outstanding balance of the P5.6-billion it borrowed from the Japan Bank for International Cooperation in 1997 for the South Road Properties development.
DBM declared the city’s 2015 Annual Budget “inoperative in part” because it exceeded the debt cap by P2.23 billion. The city has appropriated P3.2 billion for debt servicing, which is way beyond the allowable 20-percent of regular income.
Since the city’s revenue totaled P4.87 billion, it is therefore only allowed to set aside P974.47 million to pay off debts.
But, City Budget Officer Marietta Gumia said the city can still push through with the buyout since the city’s debt cap is still within what is allowed by law.
“We will not use the regular income to pay off the loan. We are still within the allowed debt cap knowing that we paid P179 million for February and around P160 million in August,” she said.
The city sets aside P300 to P500 million a year for the SRP loan. Of the amount, P150 million to P200 million is for the interest payment and the guarantee fee.
As loan guarantor, the national government gets one percent of the loan balance, which Cebu City is obligated to pay. At present, the city has an outstanding balance of P2.9 billion based on the prevailing foreign exchange rate.
City lawyer Jerone Castillo explained that it is not a new loan but a conversion to retire an existing loan having a zero net effect.
The Land Bank of the Philippines, Castillo said advised them to convert foreign currency dominated loan into a peso denominated loan to avoid variances on foreign currency.
The conversion will allow the city government to save P1.1 billion in guarantee fees. The city has already paid a total of P6.8 billion, which is bigger than the original loan, inclusive of the national government’s guarantee or commitment fee amounting to P546.36 million. (FREEMAN)