$400-M ADB loan to fund PH capital market dev’t

The Asian Development Bank has approved a $400-million policy-based loan to support the  government’s efforts to strengthen domestic capital markets and reach its development goals of high, sustained economic growth, and poverty reduction.

“By developing domestic capital markets, funds are generated to support higher levels of long-term investments and sustainable quality job creation. The program approved today will support the Philippine government’s development goals, including its response to the Covid-19 pandemic.” ADB vice president Ahmed Saeed said in a statement. 

The Support to Capital Market-Generated Infrastructure Financing Program, subprogram 1, aims to address key constraints that have limited the growth of domestic capital markets, especially government and corporate bond markets. 

It also focuses on building a vibrant domestic institutional investor base that would become a sustainable source of long-tenor infrastructure finance. 

By boosting infrastructure finance, the capital market development program would support higher public infrastructure spending for years to come.

The government’s flagship “Build, Build, Build” infrastructure development program targets an increase in public spending on infrastructure towards seven percent of gross domestic product by 2022, up from 5.5 percent in 2018 and an average of 2.8 percent in the last three decades.

“Resilient and vibrant capital markets are key to achieving economic development, growth, and poverty reduction as set out in the government’s long-term strategy AmBisyon Natin 2040,” Saeed said. 

The capital markets development program has supported various reforms in recent years, including the launch and implementation of the first government-led, comprehensive domestic bond market development plan. 

The country also has modernized its government debt trading infrastructure and provided a reliable yield curve to support the pricing of private sector debt instruments.

Other reforms have helped build an enabling environment for private sector debt instruments. These reforms will boost outstanding corporate bonds to an estimated 12 percent of gross domestic product by 2021, up from 7.5 percent in 2017. 

The government also has upgraded the Personal Equity and Retirement Account system, which makes it easier for Filipinos to tap into the capital markets to save for the future.

This latest assistance builds on decades of ADB support to financial sector reforms in the country, including strengthening governance and investor protection measures in the wake of the 1997 Asian financial crisis. 

Since 2013, ADB has been supporting reforms in the domestic capital market, which aimed to build a more diversified institutional investor base to encourage the development of long-term finance for infrastructure.

This new loan brings ADB’s total lending to Manila to USD2.1 billion so far this year. 

ADB approved a $1.5-billion loan for the Covid-19 Active Response and Expenditure Support Program on 23 April and $200 million in additional financing for the Social Protection Support Project on 27 April.