MANILA, Philippines – The Asian Development Bank (ADB) approved two new policy-based loans for the Philippines’ climate change adaptation and the deepening of its capital markets.
The ADB’s $400-million (P20.96 billion) loan under the Support to Capital Market-Generated Infrastructure Financing Program-Subprogram 2 aims to build an “efficient domestic debt market” and increase participation of insurance and pension funds in the market.
The multilateral lender said that this, alongside more long-term finance, would help the Philippines’ infrastructure gap, estimated to be at P2 trillion ($40 billion) a year up to 2030.
“As the Philippines steers its economy towards 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 ADB Principal Financial Sector Specialist for Southeast Asia Stephen Schuster. “A deeper, more diversified investor base can help ease fiscal constraints.”
ADB data showed that pension funds and the insurance sector currently account for just 12% of the Philippines’ gross domestic product, much smaller than Thailand and Japan, comprising 30% and 80% of GDP, respectively.
With the loan, the ADB said the government bond market would have better price discovery and liquidity, as well as a reliable yield curve for the private sector.
The ADB also approved a $250-million (around P13.1 billion) loan for the Philippines’ climate change adaptation and mitigation efforts.
“This is ADB’s first climate action policy-based loan. It will support the Philippines develop, deliver, and finance a holistic approach to address climate change by transitioning to low-carbon pathways, strengthening the ability of vulnerable sectors to adapt to climate change, and increasing conservation of land and marine resources,” said ADB Vice President for East Asia, Southeast Asia, and the Pacific Ahmed Saeed.
The program was prepared jointly with Agence Française de Développement, which provided $172 million.
The ADB’s policy-based loans transfer loan amounts to a government’s general budget instead of paying for explicit project costs. Funds under these arrangements are disbursed only when the country completes policy reforms that have been aligned with the ADB. – Rappler.com