ADB approves $300-M loan for infra funding

The Asian Development bank (ADB) has approved a $300-million loan and a $500,000 technical assistance grant to help the Philippine government develop the domestic capital market for infrastructure financing.

The multilateral development bank said it supports increasing investor participation in the government bond market, which can be used to directly fund infrastructure projects.

The Philippine Development Plan (PDP) calls for public spending on infrastructure to increase to 7.4 percent of gross domestic product (GDP) by 2022 from the current level of 5.1 percent.

To support this increase, the government would have to utilize a variety of funding sources including development financing, the private sector and direct government expenditure. The loan would also help in strengthening the Bureau of the Treasury’s capacity to manage its debt and investments.

“As such, increasing the size, liquidity and efficiency of the domestic capital market has taken on ever increasing importance,” ADB said in a statement.

“Given the preferred diversified funding mix, the government’s recent initiatives to improve the capital markets are encouraging and well timed,” said Stephen 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,” he added.

Economic managers have said the government would avoid a debt trap in its ambitious infrastructure program by following a borrowing mix of 80-20 in favor of domestic sources, designed to minimize exposure to foreign exchange fluctuations and to better manage debt.