The Asian Development Bank’s (ADB) Board of Directors has approved a $300 million loan and a $500,000 technical assistance grant to support the Government of the Philippines’ efforts to develop the domestic capital market to help finance infrastructure.
The package is part of ADB’s comprehensive effort to help the government finance, implement, and manage sophisticated public works projects and strengthen the framework for public-private partnerships.
The Philippine Development Plan, as embodied in the Duterte administration’s ‘Build, Build, Build’ program, calls for public spending on infrastructure to increase to 7.4% of gross domestic product (GDP) by 2022 from the current level of 5.1%.
To support this increase, the government will utilize a variety of funding sources including development financing, the private sector, and direct government expenditure. As such, increasing the size, liquidity, and efficiency of the domestic capital market has taken on ever increasing importance.
Reforms supported by the ADB program seek to ensure increased investor participation in the government bond market, which can be used to directly fund infrastructure. The program also promotes the reintroduction of repurchase agreements, a tool that boosts interest in government bond markets and strengthens the Bureau of the Treasury’s capacity to manage its debt and investments.
In addition, the program continues the government’s efforts to encourage long-term savings both by individuals and through the insurance sector. Finally, the program encourages more diversity in funding sources and the business models that provide that financing.
“Given the preferred diversified funding mix, the government’s recent initiatives to improve the capital markets are encouraging and well timed,” said Stephen R. Schuster, Principal Financial Sector Specialist at ADB’s Southeast Asia Department. “A well-functioning government bond market with competitive auctions provides direct financing for infrastructure at lower costs, while also establishing a reliable pricing benchmark for private companies to issue debt to fund their own projects. The government’s decision to open the finance sector to foreign competition will also help attract more market participants with a diversity of business models.”