ADB lends $400 M to boost Phl capital markets

The Asian Development Bank (ADB) has approved a $400-million policy-based loan to support the Philippine government’s efforts to strengthen its domestic capital markets.

The multilateral development bank said yesterday that 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.

Its focus will be on building “a vibrant domestic institutional investor base” that will become a sustainable source of long-tenor infrastructure finance. By boosting infrastructure finance, this program will support higher public infrastructure spending for years to come.

The government’s flagship Build Build Build (BBB) infrastructure development program targets an increase in public spending on infrastructure toward 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,” said ADB vice-president Ahmed Saeed. “By developing domestic capital markets, funds are generated to support higher levels of long-term investments and sustainable quality job creation.”

The program will also support the Philippine government’s development goals, including its response to the COVID-19 pandemic.

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

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

This latest assistance builds on decades of ADB support to financial sector reforms in the Philippines, 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 aims 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 the Philippines to $2.1 billion so far this year.

The bank in April approved a $1.5-billion loan for the COVID-19 Active Response and Expenditure Support Program and $200 million in additional financing for the Social Protection Support Project.