Philippines

Key development challenges

The Philippines is a lower middle-income country with ambitions to reach upper middle-income status by 2025. It has a GDP of $394 million (2021), which accounts for 11.8% of the regional output of Southeast Asia. With a population of more than 113 million, its GDP per capita is $3,460 — the seventh-highest in the region.

The development journey of the Philippines has not been linear. Despite having a higher per capita GDP than China, Thailand, and Korea in the 1960s, the Philippines subsequently 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. Almost a quarter of the population live below the national poverty line. The Philippines is ranked 116th out of 191 in the United Nations Human Development Index and ranked 117th out of 180 in Transparency International’s 2021 Corruption Perception Index.

During 2015–21, more than 13,000 projects were implemented in the Philippines by 68 development partners, with a total of $31.3 billion received in official development finance (ODF) or on average about $4.5 billion per year (in constant 2021 US$).

Overview of development finance trends

There was a significant jump in ODF spending in the Philippines in 2020. Total disbursements exceeded $9.4 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 2020003041 - JICAPH-P274, was financed through a concessional loan worth more than $1 billion from the Japanese International Cooperation Agency (JICA). ODF disbursements fell in 2021 to $6.3 billion, still well above pre-2020 levels. Over the period, average ODF disbursements in the Philippines averaged $4.5 billion per year, accounting for 16% of regional ODF.

In the Philippines, signed project commitments have consistently been higher than actual disbursements over the period. During 2015–21, disbursements equalled 67% of total commitments, slightly above the average ratio for the region of 64%. Of the top five development partners in the Philippines, the highest ratio of disbursements to new commitments was Korea, at 86%, while China was the lowest at just 8%.

Main development partners

The Philippines’ major development partners are the ADB, the World Bank, and Japan. These three partners collectively account for 58% of ODF disbursed in the Philippines over 2015–21, the third-highest degree of development partner concentration in the region after Thailand and Malaysia.

The ADB’s disbursements in the Philippines are concentrated largely in the government and civil society sector, as well as institutional strengthening in banking and financial services. The ADB does not provide grants or concessional loans to the Philippines, utilising 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. For example, the largest project implemented by the ADB in the Philippines was the 2020 Covid-19: Active Response and Expenditure Support Program (1.00061811000997), which took the form of a $1.5 billion OOF (other official flows) loan.

Similarly, the World Bank 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 2016026169 - P153744.IBRD85840.crs3, committed in 2016 and financed by a $450 million semi-concessional loan by the World Bank’s International Bank for Reconstruction and Development (IBRD).

Japan’s bilateral ODF to the Philippines was much more concessional in nature, consisting mostly of official development assistance (ODA) loans and a small amount of pure grants. Also, 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 2015003080 - JICAPH-P262, which is financed by a concessional loan. Of the $1.8 billion committed, $626 million has been disbursed so far; construction began in 2019 and is ongoing. The second-largest project was a single $468 million disbursement in 2020 for the Covid-19 Crisis Response Emergency Support Loan 2020003045 - JICAPH-C25.

Just 34% of development finance disbursed in the Philippines is considered ODA. This reflects the relative maturity and greater debt-carrying capacity of its economy.

In terms of implementing agencies, the major recipient of development financing flows from the international community is the National Department of Finance of the Philippines, followed by the central government.

Sectors

Disbursements by sector in the Philippines diverge from regional trends. The government and civil society sector in the Philippines receives considerably more finance than the regional average, most notably for 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 (MFF): Malolos–Clark Railway Project — Tranche 1 XM-DAC-46004-52083-002-LN3796 and the North–South Commuter Railway Project financed by Japan.

ODF spending in both infrastructure and human development increased from 2015 to 2021, though since 2019, human development saw a rapid rise linked to the need to respond to the Covid-19 pandemic.

Climate

The Southeast Asia Aid Map uses an adapted version of the Organisation for Economic Co-operation and Development’s (OECD’s) climate marking system to sort projects into three distinct categories: principal, where climate change mitigation or adaptation is explicitly stated as fundamental to the project; significant, where climate change mitigation or adaptation is explicitly stated but not fundamental; and not climate-related, where climate change is not targeted in any significant way.

Despite decreasing by around 45% yearly in 2015 and 2016, the volume of climate development finance disbursed in the Philippines grew every year since 2017. The increases consist mostly of “significant” projects, with a negligible increase in “principal” projects.

Most spending on “significant” projects was in the transport and energy sector, specifically on rail infrastructure. The largest project in this category is a $1.3 billion loan from the ADB for the first tranche of the Malolos–Clark Railway Project XM-DAC-46004-52083-002-LN3796, expected to be operational by 2024.

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 with a CAT-DDO project (P155656). 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 averages $1.6 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 68% of all climate-related disbursements. The ADB is by far the biggest provider of climate development finance in the Philippines.

The Philippines as an ODF provider

Like other governments in the region, 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 2015–21, Manila disbursed $1.9 million in the region, accounting for less than 1% of intraregional aid.

The Philippines has contributed annually to the ASEAN Coordinating Centre for Humanitarian Assistance on Disaster Management, providing more than $450,000 between 2015 and 2021. In addition, through its Department of Foreign Affairs and its various agencies, the country has supported capacity building initiatives and technical assistance programs in neighbouring countries. For instance, in 2018 the Philippines provided $400,000 to Indonesia for assistance to earthquake and tsunami victims Inter-SEA009.