USD400 million loan to support expansion of Philippine capital markets

The Support to Capital Market-Generated Infrastructure Financing Program, Subprogram 2, is helping build an efficient domestic debt market and increase institutional participation in the market, especially from insurance and pension funds. More supply of long-term finance will help address the country’s infrastructure financing gap, estimated at roughly Php2 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 is assisting the development and growth of the insurance and pension sectors which can drive economic growth and contribute to poverty reduction. The policy loan is also helping create an enabling environment to launch a wider range of investment products suited for long-term investors.

Pension funds and the insurance sector currently account for a small portion of the Philippines’ domestic capital market, with their combined volume equivalent to 12% of gross domestic product compared to 30% in Thailand and almost 80% in Malaysia. There is huge potential in tapping this sector for long-term funds since they have long investment horizons and low leverage. These investors can offer better debt pricing and longer maturities in local currency and are less likely to sell or retreat during short-term market corrections. 

ADB has been a strong partner in the Philippines’ capital market development efforts since 1992, particularly in strengthening the operations, governance, and oversight of the domestic capital market. Under the loan, 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. ADB also recently assisted in the development of the country’s initial Local Currency Debt Market Development Roadmap by collaborating with the Bangko Sentral ng Pilipinas, the Bureau of the Treasury, and the Securities and Exchange Commission, as well as with other development partners./.