MANILA, PHILIPPINES — The Asian Development Bank (ADB) has approved loans totaling $600 million to support the Government of the Philippines’ efforts to tap more private participation for urgently needed infrastructure investment.
The first $300 million loan is earmarked to support expanded private participation in infrastructure investment through the promotion of public-private partnership (PPP) projects. The second loan, for the same amount, supports policy changes to deepen the nonbank financial sector to unlock more long-term private funding for infrastructure.
“PPPs are vital for infrastructure development and for a sustainable economy. While there has been significant progress on PPPs, further reforms are needed to increase private investment,” said Juan Luis Gomez, Principal Public Management Specialist at ADB’s Southeast Asia Department. “These loans will help the government pursue policy reforms clearing obstacles to PPPs and increasing long-term private sector finance for them.”
Under-developed infrastructure is a drag on the Philippine economy, with the country ranked at 95 out of 144 countries globally for infrastructure quality, according to the World Economic Forum’s Global Competitiveness Report 2014-2015. The government has revived the national PPP program and taken steps to boost its effectiveness. Remaining challenges include addressing right-of-way issues, tapping capital markets, designing infrastructure master plans, and completing legal and regulatory frameworks.
The PPP-oriented loan will support improved systems to assess and budget for right-of-way acquisition and resettlement of communities. It will boost capacity and staff at the national PPP Center, and help to finalize work on proposed amendments to the build-operate-transfer law which are critical for sustaining the PPP program. The government has so far awarded ten PPP projects with total investments of $4.2 billion, including the ADB-assisted Mactan Cebu International Airport Passenger Terminal.
The second loan supports the development of long-term finance in the Philippines, where capital markets are comparatively small and illiquid, and provide limited intermediation to the private sector and to infrastructure finance.
“An enabling environment for the nonbank financial sector is urgently needed as changes to the global and local regulatory frameworks have made long-term lending less attractive to banks,” said Stephen R. Schuster, a Senior Financial Sector Specialist at the Southeast Asia Department.
Reforms to the government bond market will increase trading volumes and contribute to the development of a yield curve which can support pricing of corporate, project and infrastructure related debt. Revisions to the Insurance Code will increase the sector’s appetite for long-tenor investments, like infrastructure bonds, while parallel reforms will provide incentives to increase the country’s pool of long-term savings. For example, the program will support the launch of the Personal Equity and Retirement Account, a long-term, tax-deferred personal retirement savings account. Competition will be enhanced through increased participation by foreign financial institutions.
Both loans are the first tranches of two-tranche programs.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.