The Asian Development Bank said Monday it approved a $400-million (P20.8 billion) policy-based loan to help the Philippine government deepen the domestic capital markets.
It said in a statement the loan aims to increase the supply of long-term finance especially for infrastructure development which is crucial for the country’s sustained economic growth.
The Support to Capital Market-Generated Infrastructure Financing Program, Subprogram 2, is helping build an efficient domestic debt market and increase institutional participation in the market, especially from insurance and pension funds, it said.
The ADB said more supply of long-term finance would help address the country’s infrastructure financing gap estimated at roughly P2 trillion ($40 billion) a year up to 2030.
“As the Philippines steers its economy towards sustainable and resilient growth after the devastating COVID-19 pandemic, it will require various sources of long-term financing to support the recovery of its industries and micro, small, and medium-sized enterprises; provide social protection; and fund its infrastructure development priorities,” ADB principal financial sector specialist for Southeast Asia Stephen Schuster said.
“A deeper, more diversified investor base can help ease fiscal constraints,” Schuster said.
The ADB is assisting the development and growth of the insurance and pension sectors which can drive economic growth and contribute to poverty reduction. The policy loan is also helping create an enabling environment to launch a wider range of investment products suited for long-term investors.
Pension funds and the insurance sector account for a small portion of the Philippines’ domestic capital market, with their combined volume equivalent to 12 percent of gross domestic product, compared to 30 percent in Thailand and almost 80 percent in Malaysia.
There is huge potential in tapping this sector for long-term funds since they have long investment horizons and low leverage. These investors can offer better debt pricing and longer maturities in local currency and are less likely to sell or retreat during short-term market corrections, the ADB said.
Under the loan, ADB is supporting reforms to enhance liquidity, transparency and price discovery in the government bond market and provide a reliable yield curve for the private sector.
The ADB also recently assisted in the development of the country’s initial Local Currency Debt Market Development Roadmap by working with the Bangko Sentral ng Pilipinas, the Bureau of the Treasury, the Securities and Exchange Commission and other development partners.