Finance Secretary Carlos Dominguez III and Asian Development Bank (ADB) president Takehiko Nakao exchanged documents Monday (Dec. 10) on two loans that aim to help the Philippine government sustain its efforts on expanding financial services to small entrepreneurs and increasing private sector participation in the government’s infrastructure modernization program.

These loan documents cover Subprogram 2 of the Expanding Private Participation in Infrastructure Program (EPPIP-2) and the Inclusive Finance Development Program (IFDP-1). Both programs have approved loans of $300 million each.

The IFDP-1 aims to continue developing a resilient and inclusive financial sector in the Philippines by expanding financial services to small businesses, farmers, workers, women and other vulnerable sectors.

Meanwhile, EPPIP-2, aims to help fund the government’s external financing requirements and build on the accomplishments in tapping private sector expertise and financing for the “Build, Build, Build” program via Public-Private Partnerships (PPPs).

“Attaining financial inclusion and modernizing our infrastructure backbone are two main tasks the Duterte administration seeks to accomplish over the next four years. These two loan packages fall squarely into the national priorities we have identified. They will surely help us in achieving rapid, investments-led economic expansion,” Dominguez said after the ceremonial exchange of the documents.

Dominguez thanked “the ADB for the confidence in our ability to implement these programs and the dedication we have in pushing our economy to be at par with our most competitive neighbors. We look forward to more areas of cooperation in the coming years as the Philippines emerges to meet the challenges of development.”

President Nakao, in response, announced that the ADB is planning to extend loans of up to USD2.5 billion annually to the Philippines from 2019 to 2021 or a total of USD7.4 billion over this three-year period to provide additional support for the government’s “Build, Build, Build” program. This amount is more than double ADB’s annual assistance from 2011 to 2017.

“ADB is committed to supporting the Philippine government as it pursue more inclusive growth across the archipelago. Boosting the government’s effort to build up infrastructure and expand financial services in underserved areas of the country will help reduce income inequality in the country, which has persisted despite sustained strong economic growth in recent years,” Nakao said.

Dominguez said that from March 2016 to April 2018, major reforms under the IFDP, which aims to increase financial inclusion for the poorest 40 percent of the Philippine adult population, have been completed.

These include, he said, the submission of draft legislation on the development of the national identification (ID) system, which is now a law and in the process of implementation; introduction of a framework to promote agriculture value chain finance; adoption of the National Retail Payments System; submission of legislation on the establishment of a modern secured transaction system, which has also been enacted into law with the passage of the Personal Property Security Act; and approval of an innovative pilot project for a rural bank to migrate its physical core banking system to a cloud-based system.

Under the IFDP, Dominguez said the government will continue and upgrade these reforms by allocating enough funds for the national ID system; implementing an enhanced economic and financial learning program and initiatives to increase the share of digital payments; and issuing regulations to promote and enable the use of cloud-based core banking technology.

Based on data cited by the ADB, only 34 percent of Filipino adults had a bank account, compared with 82 percent in Thailand and 49 percent in Indonesia as of 2017. Also, a 2017 Financial Inclusion Survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed that only 14 percent of Filipino adults borrowed from a formal financial institution.

“We have a lot of work to do in improving the access of unbanked Filipinos to financial services and products that would encourage them to save and make investments,” Dominguez said.

The EPPIP, meanwhile, has so far accomplished the following: awarded a total of 12 national, and two PPP Center-assisted contracts for projects of local government units (LGUs); adopted the Government’s National Transport Policy; published a handbook on standard PPP contract provisions in collaboration with the University of the Philippines (UP) College of Law; and issued the Implementing Rules and Regulations (IRR) for Executive Order No. 78 on the use of alternative dispute resolution mechanisms in all contracts involving PPP projects.

Dominguez said EPPIP-2 will help in sustaining the reforms started under the program and in instituting new ones to help improve the Philippines “capacity to better involve the private sector in infrastructure investments as well as improve the ability of our public agencies to process, finance, design and eventually, efficiently execute large-scale strategic projects.”

The Duterte administration’s aggressive approach to infrastructure development has pushed infrastructure spending to P571 billion in the first nine months of 2018, or 7.2 percent above target and 46 percent more than the amount spent in the same period last year.

Under “Build, Build, Build,” the government expects to spend some $170 billion or over P8 trillion over the medium term. Composed of 75 high-impact infrastructure projects, the program will be financed by a mixture of Official Development Assistance (ODA) from foreign development institutions and the Philippines’ partners in the region, funding support from the tax reform program, offshore bond offerings and private investments through PPPs.

This ambitious program aims to increase public investments on infrastructure to 7.3 percent of GDP by 2022 from 5.4 percent of GDP in 2017.

“We have embarked on a path of rapid and inclusive growth. This path should bring us to high middle-income status in the medium term as well as dramatically bring down poverty incidence from 21.6 percent in 2015 to 14 percent by the end of President Duterte’s term. The infrastructure modernization program as well as attaining our goal of financial inclusion are among the key drivers propelling the economy along this path,” Dominguez said.

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