$400m AfDB loan to support expansion of Philippine capital markets

Manila: The Asian Development Bank (AfDB) has approved a $400 million policy-based loan to help the Philippine government further deepen the country’s domestic capital markets and increase the supply of long-term financing, especially for infrastructure development, which is crucial for the sustainable development of the country. economic growth.

The Capital Market-Generated Infrastructure Financing Support Program, Sub-Program 2, contributes to creating an efficient domestic debt market and increasing institutional participation in the market, particularly insurance and pension funds. An increased supply of long-term finance will help close the country’s infrastructure financing gap, estimated at around Php2 trillion ($40 billion) per year until 2030.

“As the Philippines steers its economy towards sustainable and resilient growth following the devastating COVID-19 pandemic, it will need diverse sources of long-term financing to support the recovery of its industries and micro, small and medium enterprises. ; provide social protection; and fund its infrastructure development priorities,” said Stephen Schuster, AfDB Senior Financial Sector Specialist for Southeast Asia. “A deeper and more diverse investor base can help ease budget constraints.”

The AfDB assists in the development and growth of the insurance and pension sectors which can stimulate economic growth and contribute to poverty reduction. The policy loan also helps create an environment conducive to the launch of a wider range of investment products suitable for long-term investors.

Pension funds and the insurance industry currently make up only a small part of the domestic capital market in the Philippines, with their combined volume equivalent to 12% of gross domestic product, compared to 30% in Thailand and almost 80% in Malaysia. There is huge potential to tap into this sector for long-term funds, as 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 exit during short-term market corrections.

The AfDB has been a strong partner in the Philippines’ capital market development efforts since 1992, particularly in strengthening the operations, governance and oversight of the national capital market. As part of the loan, the AfDB is supporting reforms aimed at improving liquidity, transparency and price discovery in the government bond market and providing a reliable yield curve for the private sector. The AfDB has also recently contributed to the development of the initial roadmap for the development of the country’s local currency debt market by working with the Bangko Sentral ng Pilipinas, the Office of the Treasury and the Securities and Exchange Commission, as well as with other development partners.

The AfDB is committed to achieving a prosperous, inclusive, resilient and sustainable Asia and the Pacific, while continuing its efforts to eradicate extreme poverty. Founded in 1966, it is owned by 68 members, including 49 from the region.