ADB extends $250-M loan to RP

The Asian Development Bank (ADB) has extended a $250 million loan to the Philippines for the implementation of reforms aimed at improving the investment climate, better manage the country’s finances, and help enhance economic growth.

The loan facility carries a 15-year term, including a grace period of three years, with interest determined by the ADB’s Libor-based lending window.

"The development policy support program will help the government of the Philippines further expand the size of its economy, cut poverty and create jobs," Tom Crouch, ADB country director for the Philippines, said in a statement.

Robust economic growth and an improved fiscal situation have improved investor perceptions on the medium-term outlook for the Philippine economy.

Also, there has been a rise in capital flows, and the peso has appreciated by about 6.7 percent against the dollar since the start of the year.

In addition, all three major international rating agencies improved their outlooks for the Philippine economy.

Fitch and Standard & Poor’s (S&P) upgraded their outlooks for Philippine sovereign credit from negative to stable in early 2006, followed by Moody’s, which raised its negative outlook to stable in October.

After carrying out difficult tax and fiscal measures, the country’s consolidated public sector deficit declined from a peak of 5.2 percent in 2003 to an estimated 0.9-to-1.0 percent in 2006. The improved fiscal situation has been driven in part by increased tax revenues, which are set to rise by about one percent of gross domestic product (GDP) in 2006.

"This is the first increase of any significance in a decade," the ADB official added.

But despite progress, challenges remain. Employment growth has been modest and it has to grow more to offset the increased size of the workforce. Poverty rates are falling but they remain high.

The development policy support program will aid the National Government’s attempts to address these problems through its Medium-Term Philippines Development Plan (MTPDP).

The plan focuses on key reforms that will bring high and sustainable economic growth, poverty reduction and job creation.

The reforms supported by the program are designed to restore fiscal sustainability, maintain economic stability, and improve creditworthiness by strengthening tax collection and administration, cutting inefficient spending, and strengthening the country’s debt management strategy. It will also support the anti-corruption initiatives in the revenue-collecting agencies of the Bureau of Internal Revenue and Bureau of Customs.

"Strengthening tax collection and management, as well as reducing corruption, will enable the government to spend more on programs which help the neediest members of society," Crouch added.