ADB OKs $400-M loan to deepen PH debt markets

To help sustain the Philippine economy’s recovery from pandemic-driven recession, the Asian Development Bank (ADB) gave the green light to a $400-million policy-based loan aimed at further deepening the country’s domestic capital markets and increasing the supply of long-term finance, especially for infrastructure development.

“As the Philippines steers its economy toward sustainable and resilient growth after the devastating COVID-19 pandemic, it will require various sources of long-term financing to support the recovery of its industries and micro, small, and medium-sized enterprises; provide social protection; and fund its infrastructure development priorities,” said Stephen Schuster, ADB principal financial sector specialist for Southeast Asia.

Considering these, Shuster said in a statement that a deeper, more diversified investor base could help ease fiscal constraints.

Over two years during the pandemic, the Philippine government’s debt stock climbed to P12.7 trillion as of last March — close to two-thirds of the domestic economy’s value.

Also, the national government has been spending beyond the budget at 6.4 percent of gross domestic product, which economic managers want to bring down to the pre-pandemic level of 3 percent.

The ADB loan is meant to help build an efficient domestic debt market and increase institutional participation in the market, especially from insurance and pension funds.

The Philippine-based multilateral lender said more supply of long-term finance would help address the country’s infrastructure financing gap, which was estimated at about P2 trillion (or $40 billion a year up to 2030.

Currently, pension funds and the insurance sector account for just 12 percent of GDP in the Philippines. In comparison, the ratio is 30 percent in Thailand and about 80 percent in Malaysia.

The ADB sees a huge potential in tapping this sector for long-term funds since they have long investment horizons and low leverage.

Given these, investors can offer better debt pricing and longer maturities in local currency, and are less likely to sell or retreat during short-term market corrections.

Further, under the loan, the ADB is supporting reforms to enhance liquidity, transparency, and price discovery in the government bond market and provide a reliable yield curve for the private sector.

Before this, the ADB also helped in the development of the Philippines’ initial Local Currency Debt Market Development Roadmap by working with the Bangko Sentral ng Pilipinas, the Bureau of the Treasury, and the Securities and Exchange Commission (SEC), and other partners.

—RONNEL W. DOMINGO