The Duterte government’s “Build Build Build” initiative has been given a boost via the Asian Development Bank’s (ADB) approval of a $300-million loan and another $500,000 in technical assistance for capital market development.
“The package is part of ADB’s comprehensive effort to help the government finance, implement, and manage sophisticated public works projects and strengthen the framework for public-private partnerships,” the Manila-based lender said in a statement on Monday.
With the Philippine Development Plan calling for an increase in infrastructure spending to 7.4 percent of gross domestic product by 2022 from the current 5.1 percent, the ADB noted that the government would have to utilize a variety of funding sources, including development financing, the private sector and direct expenditures.
Increasing the size, liquidity and efficiency of the domestic capital market has subsequently taken on more importance, it added.
“Given the preferred diversified funding mix, the government’s recent initiatives to improve the capital markets are encouraging and well timed,” said Stephen R. Schuster, rincipal Financial Sector Specialist at ADB’s Southeast Asia Department.
“A well-functioning government bond market with competitive auctions provides direct financing for
infrastructure at lower costs, while also establishing a reliable pricing benchmark for private companies to issue debt to fund their own projects,” he added.
“The government’s decision to open the finance sector to foreign competition will also help attract more market participants with a diversity of business models.”
Reforms supported by the ADB loan and grant package aim to boost investor participation in the bond market, which the government can tap to directly fund infrastructure.
The package also aims to promote the reintroduction of repurchase agreements, described as “a tool that boosts interest in government bond markets and strengthens the Bureau of the Treasury’s capacity to manage its debt and investments”.
Lastly, the ADB said it wanted to support the government’s efforts to promote long-term savings — by individuals and through the insurance sector — and encourages more funding diversity.