Soft loans' limited role in debt portfolio caps impact of UMIC upgrade, DoF says

The Department of Finance (DoF) stated that the impact of losing access to soft loans due to the Philippines’ elevation to upper-middle income country (UMIC) status is limited, as concessional loans account for only 10-15% of the total debt portfolio. Finance Secretary Frederick D. Go told a media roundtable that the reclassification to UMIC tier will expand the country’s financing options. Mr. Go assured that there is nothing to worry about in the near term, as the UMIC classification must be maintained for at least three years before any changes occur. He added that for at least the next three years, no grants will be lost and borrowing rates will not increase. Should the UMIC status be maintained for the next three years, interest rates on concessional loans could increase by 10 to 20 basis points, but this will not affect multilateral and bilateral loans. "As far as I’m concerned, nothing is changing with the multilateral and bilateral loans," he said. From now until 2028, 70-80% of borrowings are expected to come from domestic sources and 20-30% from external sources. Mr. Go further explained that the improved creditworthiness from the UMIC upgrade will broaden access to financing from the private sector, private investors, the retail market, and the banking industry, allowing the country to borrow at lower or better interest rates. This improved credit profile will also support the country’s fiscal position by reducing borrowing costs, leading to savings and controlled total loans. While some gains may be felt early, larger benefits are expected if the Philippines sustains its UMIC status. Regarding the country’s potential to achieve an “A” sovereign credit rating by 2028, Mr. Go stated it depends on progress across several economic indicators, including reforms, GDP growth, fiscal deficit, and current account. He noted that UMIC status is a contribution to the road to an A-rating, but not a decisive factor.