Government Borrowing & Commitment Fees

It has been mentioned that in the annual budget, national governments compute for the level of expenditures (farm to market roads, hospitals, schools, etc..) that will be needed to finance a growing population. To be able to finance the planned spending, ways on how to raise the needed money (taxes, tariffs, etc.), are included and put into action.

In instances when the projected income fails to equal the needed amount, governments have naturally resorted to borrowing (both domestic and foreign loans).


In the past, the Philippine government borrowed a lot from institutions such as the IMF, WB & ADB, as well as ODA (Official Development Assistance) loans.

To date, debt servicing remains a big slice in the country’s national budget. Despite this, the country has a poor record in the actual usage of such loans due to delays in the implementation of the programs (which the loans were earmarked for). This naturally contributed to the failure of some sectors (in the economy) to receive the benefits of the delayed programs. What makes it worse is a little known fact that the government is slapped with Commitment Fees for the late availment of the loan funds. As of 2002, the commitment fees paid by the Philippine government to the ADB and WB has already reached US$40 Million. The amount (at present day costs) would be enough to feed 20,000 families for a year.

For a heavily indebted country, a wasted $40M (only for ADB & WB), is not funny at all. The figure for the two agencies must have reached a bigger number, by now. If we will compute the total figure for all the loan institutions, the end figure will surely be gigantic.

As of last Saturday, the government reports of instituting methods that will minimize, if not eliminate delays that will lead to the payment of commitment fees. The news simply means that the commitment fees still live on. So much for professional economists…

To be continued.....

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