Philippines to take on $250 million loan for policy reforms

By Jennifer Chiou

New York, Feb. 8 - The Government of Philippines entered into a $250 million loan via Asian Development Bank to help support a series of reforms aimed at improving the investment climate, bettering management of the country's finances and alleviating poverty, according to a bank news release.

The loan will have a 15-year term, including a grace period of three years, with interest determined by the bank's Libor-based lending facility.

"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, the bank's country director for the Philippines, said in the release.

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, according to the release.

The program will also support the government's anti-corruption initiatives in the revenue-collecting agencies of the Bureau of Internal Revenue and Bureau of Customs.

Robust economic growth and an improved fiscal situation have begun to enhance investor perceptions about the medium-term outlook for the Philippine economy, the bank noted, adding that there has been a rise in capital flows and the Philippine peso has appreciated by about 6.7% against the dollar since the start of the year.

In addition, Fitch Ratings and Standard & Poor's improved their outlooks for Philippine sovereign credit to stable from negative in early 2006, followed by Moody's Investors Service, which upgraded the country's negative outlook to stable in October.

After carrying out difficult tax and fiscal measures, the country's consolidated public sector deficit declined to an estimated 0.9% to 1.0% in 2006 from a peak of 5.2% in 2003. The improved fiscal situation has been driven in part by increased tax revenues, which are set to rise by about 1% of GDP in 2006, according to the release.

This is the first increase of any significance in a decade, the bank said, but despite the progress, challenges such as modest employment growth remain.

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