THE Philippines has received a new $600-million loan from the World Bank to boost the resiliency and sustainability of its financial sector and strengthen economic recovery from the Covid-19 pandemic.
The loan, intended to finance the Second Financial Sector Reform Development Policy Financing program, is the latest loan approved for the Philippines this year. In all, the country received $1.6 billion worth of loans from the World Bank and the Asian Development Bank (ADB) this year.
The World Bank loan provides continuing support to three policy reform areas—strengthening financial sector stability, integrity, and resilience; expanding financial inclusion for individuals and firms, especially micro, small, and medium enterprises (MSMEs); and catalyzing climate and disaster risk finance to help protect Filipino families from the impacts of climate change and natural disasters.
“Policy actions that strengthen the stability of the financial sector— including banks and insurance companies—will help Filipino families, businesses, and investors withstand financial shocks and enhance their resilience by ensuring that problems in these financial institutions are detected at an early stage without severe disruptions to the economy,” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand.
The World Bank’s loan is a development policy loan (DPL) which provides quick-disbursing assistance to countries undertaking reforms. DPLs typically support policy and institutional changes needed to create an environment conducive to equitable growth as defined by countries’ own development priorities.
Under its strengthening financial sector stability, integrity, and resilience pillar, this DPL series supports reforms aiming to strengthen the legal and institutional framework to improve financial sector oversight and integrity, enhance crisis management and resolution framework in the sector and improve the availability of long-term finance.
This DPL also supports the financial sector’s resilience to climate-related shocks by integrating climate and environmental risks in the financial institutions’ risk management frameworks and mobilizing private sector financing for green investments by encouraging banks to incorporate sustainability principles into their investment activities.
Despite continuing progress, only 51 percent of Filipinos aged 15 and above have a transaction account with a financial institution, way below the East Asia and Pacific regional average of 80 percent.
In the bottom 40 percent of the population, only 34 percent of adults have an account. Supporting reforms for financial inclusion or enhancing Filipinos’ access to financial services is therefore an important part of this financing operation, according to Diop.
“Financial inclusion can be a key enabler to speed up poverty reduction and strengthen recovery from the pandemic,” said Diop. “Filipinos who have accounts with financial institutions like banks will have opportunities to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health of their children, manage risks, and weather financial shocks, which can improve the overall quality of their lives.”
Earlier this month, the ADB Board of Directors approved a $500-million policy-based loan to address the impact of the pandemic on jobs and livelihoods and another $500-million policy-based loan to help the government expand economic opportunities in agriculture while ensuring near- to long-term food security for the population.
The first loan supports Subprogram 2 of the Competitive and Inclusive Agriculture Development Program, which aims to further develop the agriculture sector with trade policy and regulatory framework reforms. It also seeks to enhance public services and finance for the sector, and social protection for rural families affected by the program’s reforms.
Through the other loan, ADB is financing the Post-Covid-19 Business and Employment Recovery Program which supports government initiatives to expand labor market programs that address skills mismatches and promote training to reskill and retool workers to meet new demands in the post-pandemic jobs market.
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