Financing Philippine Growth : Trends and Challenges in Funding Infrastructure Projects

Poor infrastructure has long been identified as one of the major barriers to Philippine economic growth. From 2008-2012, the share of infrastructure spending by the government in the country's Gross Domestic Product (GDP) was approximately only 2%. Compared to other Association of Southeast Asian Nations (ASEAN) member states, the Philippines is ranked 7th out of 9 countries (excluding Myanmar). Globally, it is in 95th place. One solution envisaged is to secure greater private sector participation in constructing, operating, and managing infrastructure projects though Public-Private Partnership (PPP) programs. However, financing such projects through traditional banking channels has now become difficult. Stricter banking regulations have raised the cost of borrowing and restricted access to bank financing altogether in some cases due to borrower limits. Banks have also lost appetite for funding long-term commitments like infrastructure projects. Because of these, there is now a need to turn to the capital markets as an alternative source to fulfill the current infrastructure funding requirements. However, the Philippine capital market is currently underdeveloped and lack sufficient depth and liquidity for it to become a viable alternative. The purpose of this study is twofold: (1) to assess the current state of infrastructure in Philippines and (2) identify the challenges and obstacles to the development of the capital market as an alternative source of financing for infrastructure projects