Interview: Lynette Ortiz
In what ways can the Philippines increase foreign direct investment (FDI) inflows?
LYNETTE ORTIZ: FDI inflows to the Philippines are expanding and the government is working to make the country even more attractive as an investment destination. Its focus on improving infrastructure – including the Build, Build, Build programme – is key. Given the importance of logistics, telecommunications, roads and bridges in a country with more than 7000 islands, improving accessibility will make the Philippines more competitive. Implementing large-scale projects takes time but the foundations are being established today. In addition, the Ease of Doing Business and Efficient Government Service Delivery Act and a reassessment of the negative list will help drive FDI by reducing turnaround times and enhancing responsiveness to investors’ needs. Opening up industries which were exclusive to only Philippine citizens will spur FDI.
What appetite is there among domestic banks for bond offerings as a source of financing?
ORTIZ: In the years since the central bank, Bangko Sentral ng Pilipinas (BSP), issued Circular 975 and Circular 1010 allowing banks to tap domestic capital markets as an alternative funding source, the bank bond market has reached P159bn ($3bn), highlighting the appetite among commercial banks for the issuance of these financing tools.
Moreover, the moratorium on long-term negotiable certificates of deposit (LTNCDs) – starting in January 2020 – will encourage banks to carry out additional issuance of bonds as they will become the fastest and cheapest way to access financing. In terms of transactional costs, bonds are cheaper than LTNCDs and the reserve requirement ratio when issuing bonds is 6% for commercial banks. Banks will not need to secure BSP approval, instead they will only have to list on the Philippine Dealing and Exchange Corporation, the fixed-income trading platform.
To what extent do infrastructure projects deepen capital markets, and where do you see opportunities to diversify sources of external funding?
ORTIZ: Sufficient credit and liquidity are fundamental in the implementation of large-scale projects. Both the government and the private sector need to access financing to undertake ambitious ventures that require significant levels of capital. The Philippines is expected to reach growth rates of around 7% and the country is well positioned to obtain diverse external funding in favourable conditions.
With proven fiscal discipline and varied external funding sources, the Philippines must be present in multiple markets, create awareness of opportunities and project an image of stability. Its international reputation is crucial in gaining access to offshore capital markets such as the US dollar global bonds market, Panda bonds and eurobonds. Our “BBB+” rating from Standard & Poor’s will be helpful in allowing us to tap different pools of liquidity and investors to finance infrastructure projects.
How do you assess green bonds as a means to partially address the Philippines’ infrastructure deficit and improve climate resilience?
ORTIZ: The Philippines’ steady economic growth has made it well positioned to raise funds and investment from different sources, including social and green bonds. The priority is to make these instruments attractive to issuers and investors, and implement incentives that make the bonds a good option for both parties. For example, a concern among issuers is the additional expenses related to the establishment of a framework for green bonds. The process necessitates a third-party verification that the financing mechanism meets the necessary conditions and that the expenditure has been deployed for the original purpose. Issuers need to know the benefits will outweigh the costs before they offer such bonds.
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