Philippines

Key development challenges

The Philippines is a lower middle-income country with a GDP of $404 billion (2022), which accounts for 11.1% of the regional output of Southeast Asia. With a population of more than 115 million, its GDP per capita is $3,500 — the seventh-highest in the region.

The development journey of the Philippines has not been linear. The Philippines had a higher per capita GDP than China, Thailand, and South Korea in the 1960s, but fell behind the rapid economic growth of its neighbours. Pursuit of widespread reforms in the 1990s has since put the country back on the path of rapid economic progress.

During 2015–22, more than 15,000 aid and development projects were implemented in the Philippines by 74 development partners, with a total of $40.2 billion in official development finance (ODF) received, about $5 billion per year on average (in constant 2022 US$).

Overview of development finance trends

There was a significant jump in ODF spending — including grants, loans, and other forms of assistance — in the Philippines in 2020. Total disbursements exceeded $10.3 billion, mostly due to large non-concessional loans from multilateral development banks such as the Asian Infrastructure Investment Bank (AIIB), the World Bank, and the Asian Development Bank (ADB) for Covid-19 response support and social services. However, the largest project that year, involving the construction of the Cebu–Mactan Bridge and a coastal road, was financed through a concessional loan worth more than $1 billion from the Japan International Cooperation Agency. ODF disbursements fell in 2022 to $6.7 billion, still well above pre-2020 averages. Over the 2015–22 period, ODF flows to the Philippines accounted for 16% of ODF into Southeast Asia.

In the Philippines, signed project commitments have consistently been higher than actual disbursements. During 2015–22, disbursements equalled 50% of total commitments, below the average for the region of 67%. Of the top five development partners in the Philippines, the World Bank had the highest rate of disbursements to new commitments, at 96%, while China had the lowest at just 2%.

Main development partners

The Philippines’ major development partners are the ADB, the World Bank, and Japan. These three collectively accounted for 76% of ODF disbursed in the Philippines over 2015–22, among the highest for development partner concentration.

The ADB’s disbursements in the Philippines are concentrated largely in the government and civil society sector, as well as in institutional strengthening in banking and financial services. The ADB does not provide grants or concessional loans to the Philippines, using only non-concessional loans. The ADB’s spending rose significantly in 2020, largely through loans directly to the Philippines’ Department of Social Welfare and Development for social assistance projects, in response to the Covid-19 pandemic. The largest project implemented by the ADB in the Philippines was the 2020 Covid-19 Active Response and Expenditure Support Program, which took the form of a $1.7 billion OOF (other official flows) loan.

The World Bank also provides only OOF loans to the Philippines, and its top sector by spending is also government and civil society, followed by humanitarian aid. Like the ADB, the World Bank’s disbursements ramped up in the Philippines in 2020, increasing by 133%. The largest project was the Philippines Social Welfare Development and Reform Project II, committed in 2016 and financed by a $540 million semi-concessional loan by the World Bank’s International Bank for Reconstruction and Development.

Japan’s ODF to the Philippines was much more concessional in nature, consisting mostly of official development assistance (ODA) loans and a small number of grants. Unlike the other two major development partners, Japan’s disbursements were concentrated in the transport and storage sector. The most significant project is the North–South Commuter Railway Project, which is financed by a concessional loan. Of the $2.4 billion committed, $870 million has been disbursed so far; construction began in 2019.

Just 36% of development finance disbursed in the Philippines is considered ODA. This reflects the relative maturity and greater debt-carrying capacity of its economy.

Sectors

Disbursements by sector in the Philippines diverge from regional trends. The government and civil society sector in the Philippines (29%) received notably more finance than the regional average (18%). Spending in this sector is largely focused on judicial affairs and public finance management. Conversely, the Philippines energy sector receives a markedly low amount of ODF compared to the rest of the region.

Although transport and storage is the second-largest sector in the Philippines by development finance disbursements, its share is slightly below the regional average. The primary focus in the transport and storage sector in the Philippines is rail infrastructure, with projects such as the ADB’s Multi-tranche Financing Facility: Malolos–Clark Railway Project – Tranche 1, and the North–South Commuter Railway Project financed by Japan.

Climate

The volume of climate development finance disbursed in the Philippines has increased year-on-year since 2017. Prior to 2020, increases consisted mostly of “significant” projects, with a negligible increase in “principal” projects. However, since 2020 the Philippines has seen an additional $1.2 billion in “principal” financing.

Most spending on “significant” projects was in the transport and energy sectors, specifically on rail infrastructure. The largest project in this category is a $1.5 billion loan from the ADB for the first tranche of the Malolos–Clark Railway Project, expected to be operational this year.

Spending on “principal” projects was concentrated in the humanitarian aid sector, funded largely by loans from the World Bank, such as the 2018 Second Disaster Risk Management Development Policy Loan. The Philippines is highly vulnerable to natural hazards, facing some of the highest disaster risk levels in the world. Accordingly, multi-hazard response preparedness is the primary purpose of finance for “principal” projects.

Climate development finance disbursements to the Philippines averaged $1.7 billion per year, making it the second-largest destination of such finance in the region, behind Indonesia. OOF loans are the major form of climate development finance, making up 58% of all climate-related disbursements. The ADB is by far the biggest provider of climate development finance in the Philippines.

Gender

Between 2015 and 2022, the Philippines received $16.3 billion in gender development financing. In the half-decade before 2020, the country saw an average of $800 million per year in gender-earmarked financing. Since 2020, annual gender development financing has jumped to more than $4.1 billion. Eighty-six per cent of gender financing to the Philippines comes in the form of “significant” tagged funds.

From 2021 to 2022, flows of development financing with a “principal” focus on gender declined massively, from an annual average of $321 million to just $40 million. The largest “principal” gender project in the Philippines was the $540 million Expanded Social Assistance Project funded by the ADB.

The Philippines as an ODF provider

Manila has provided development assistance to its neighbours through various channels, including bilateral aid programs, multilateral initiatives, and regional organisations such as the Association of Southeast Asian Nations (ASEAN). From 2015–22, Manila disbursed $1.15 million in the region, accounting for less than 1% of intra-regional aid.

The Philippines has contributed annually to the ASEAN Coordinating Centre for Humanitarian Assistance on Disaster Management, providing more than $600,000 between 2015 and 2022. The country has also financed bilateral assistance programs in neighbouring countries. For instance, in 2018 it provided $400,000 to Indonesia for assistance to earthquake and tsunami victims.