ADB lends $400 million to support capital market

MANILA, Philippines — The Asian Development Bank (ADB) has approved a $400-million policy-based loan to support the Philippine government’s efforts to further develop domestic capital markets and increase the supply of long-term finance, especially for infrastructure development.

In a statement yesterday, the multilateral development bank said the Support to Capital Market-Generated Infrastructure Financing Program, Subprogram 2, would help build an efficient domestic debt market as well as increase participation, particularly from insurance and pension funds.

Greater supply of long-term finance is expected to help the country address its infrastructure financing gap estimated at roughly P2 trillion or $40 billion a year up to 2030.

“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.

“A deeper, more diversified investor base can help ease fiscal constraints,” he said.

The policy loan is aimed at helping create an enabling environment for a wider range of investment products for long-term investors.

The ADB is assisting in the development of the insurance and pension sectors as these are seen to help drive economic growth and alleviate poverty.

At present, pension funds and the insurance sector account for a small portion of the country’s domestic capital market, with their combined volume equivalent to 12 percent of gross domestic product, lower than the 30 percent in Thailand and almost 80 percent in Malaysia.

Given their long term investment horizons and low leverage, there is huge potential seen in tapping the pension funds and insurance sector for long-term funds.

These investors are seen to offer better debt pricing and longer maturities in local currency. They are also unlikely to sell during short-term market corrections.

Since 1992, the ADB has been providing support to the Philippines’ capital market development, particularly in strengthening the operations, governance, and oversight of the domestic capital market.

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.

The ADB recently worked with the Bangko Sentral ng Pilipinas, the Bureau of the Treasury, and the Securities and Exchange Commission, as well as with other development partners in the development of the country’s initial Local Currency Debt Market Development Roadmap.