ADB provides $400 million in capital market support
31 May 2022
The global development bank said in a statement yesterday that Subprogram 2 of the Support to Capital Market-Generated Infrastructure Financing Program will help construct an efficient domestic debt market and enhance participation, notably from insurance and pension funds.
The Asian Development Bank (ADB) has authorized a $400 million policy-based loan to help the Philippine government improve domestic capital markets and increase long-term financing, particularly for infrastructure development.
The global development bank said in a statement yesterday that Subprogram 2 of the Support to Capital Market-Generated Infrastructure Financing Program will help construct an efficient domestic debt market and enhance participation, notably from insurance and pension funds.
A greater supply of long-term funding is expected to assist the country in closing the P2 trillion ($40 billion) infrastructure financing gap by 2030.
“As the Philippines recovers from the devastating COVID-19 pandemic, it will need a variety of long-term financing sources 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 broader, more diverse investment base can assist alleviate fiscal restrictions,” he explained.
The policy loan will aid in the creation of an enabling environment for a greater choice of long-term investment solutions.
The ADB provides aiding in the development of the insurance and pension sectors, which are considered as important drivers of economic growth and poverty alleviation.
Pension funds and the insurance sector currently make up a modest part of the country’s domestic capital market, accounting for about 12% of GDP, compared to 30% in Thailand and nearly 80% in Malaysia.
Given their long investment horizons and minimal leverage, tapping the pension and insurance sectors for long-term money has enormous promise.
These investors are thought to be able to provide better debt pricing and longer maturities in local currency. They are also less likely to sell during market downturns.
The ADB provides assistance in the Philippines’ capital market development since 1992, focusing on improving the domestic capital market’s operations, governance, and oversight.
The ADB is supporting changes in the government bond market to improve liquidity, transparency, and price discovery, as well as offer a stable yield curve for the private sector, as part of the loan.
The ADB recently collaborated on the country’s first Local Currency Debt Market Development Roadmap alongside the Bangko Sentral ng Pilipinas, the Bureau of the Treasury, and the Securities and Exchange Commission, as well as other development partners.
