BEYOND BUDGET

*Assalamu alaikum wa Rahmatullahi wa Barakatuh.*
Intense heat is really on in the country. Lately, we would hear parents reminding their children to always stay hydrated or indoors, while others choose to travel to cooler places! Indeed, climate change is an inescapable reality, as its disastrous effects are now the focus of global leaders and policymakers. This, I was able to confirm recently during the Asian Development Bank (ADB) meetings in South Korea, which was attended by finance and budget ministers, and central bank governors.
The momentous assembly presented a joint report by ADB and ASEAN+3 titled: "Reinvigorating Financing Approaches for Sustainable and Resilient Infrastructure in ASEAN+3."
The report touched on innovative financing solutions for infrastructure investments in the ASEAN+3 region and the need for sustainable financial solutions to address climate change.
I wholeheartedly believe that developing countries like ours need to ramp up its infrastructure to meet its economic and social goals. Numerous articles in the past mentioned that the Philippines is two to three decades behind on infrastructure despite the increase in public expenditure. And so we need to act fast. No more delays. Now is the best time to close that infrastructure gap.
But, while it is true that fast-tracking the completion of needed infrastructure is vital to the country's recovery, it likewise plays a crucial role in addressing climate change. Climate change, on the other hand, plays a big role in infrastructure planning and development. Everything is interconnected. The ASEAN+3 region recognizes the need to make sustainable finance part of its agenda "to boost investments in renewable energy and climate-resilient infrastructure to support a fair, affordable, and secure energy transition and address the effects of climate change."
Thus, the ADB report is actually a user-friendly policy toolkit on creative infrastructure financing models for economic leaders, policymakers, and investors.
As ADB Managing Director General Woochong Um said, “Innovative financing mechanisms are needed to attract private and institutional capital — along with public funds — to fund critical infrastructure that will create jobs and generate revenue for local economies.”
But the question is — How much infrastructure investment is needed to see sustained economic growth? According to ADB, the estimated total infrastructure investment need of ASEAN is at $2.8 trillion (baseline) and $3.1 trillion (climate-adjusted), placing the annual investment need at $184 billion and $210 billion, respectively.
These infrastructure gap figures do not include the additional expenditure associated with climate change, that increasingly impact existing infrastructure in Southeast Asia. Note that according to the long-term climate risk index for 2000–2019, the Philippines ranks among the 10 countries most affected by weather-related loss events and are most vulnerable to climate-linked risks.
Difficult? Yes. But mind you — addressing these infrastructure and climate change financing gaps is possible. However, narrowing these gaps isn't the sole job of governments. Private sector participation is also a key player.
The ADB report mentioned that in order to scale up ASEAN+3 economies as they bounce back from the pandemic, “innovative finance mechanisms are needed to catalyze private and institutional finance for infrastructure."
There are various financing options such as ADB facilities, local or international markets, private sector investments and climate-related financing innovations. These include: blended financing that mobilizes and combines resources (multilateral institutions, private investments and public funds); public-private partnerships; local government bond issuances that empower local communities to identify and address their own infrastructure or climate financing gaps; green bonds designed to fund projects favorable to environmental and climate change resilience; convertible loans and debt structures that allow borrowers to reach certain milestones in exchange for condonation of payment of loan interest and principal; asset securitization that transforms assets into more liquid marketable securities or cash; carbon-credit mechanisms that incentivize entities to reduce emission by issuing tradable credits; and transition funds, such as ADB's Energy Transition Mechanism (ETM) that provide credit opportunities for borrowing entities to transit to low-carbon, energy efficient and green infrastructure-based economy.
In fact, in November 2021, ADB said that ETM aims to deliver $100 billion in cumulative climate financing until 2030, $34 billion of which is dedicated to adaptation projects.
Apart from national government funds, there are other funding sources that can be tapped, such as bilateral funding by countries, global development funds, sovereign wealth funds, among others.
It is important to note, however, that while innovative financial solutions open new doors to facilitate development, access to these available options is likewise crucial.
In April 2020, Bangko Sentral ng Pilipinas (BSP), led by then BSP governor and now Finance Secretary Ben Diokno, crafted the Sustainable Finance Framework circular, which cites the crucial role of financial service industries in pursuing sustainable and resilient growth through environmentally and socially responsible business decisions.
Even then, Sec. Diokno emphasized that green investments, such as on energy efficiency, green infrastructure, support for low carbon vehicles, among others, are integral tools to recovery.
Now, through the Medium Term Fiscal Framework, the administration of President Ferdinand R. Marcos Jr. aims to maintain high infrastructure spending at five to six percent of annual GDP from 2022 to 2028. Further, in 2023, ₱1.3 trillion has been allocated in the national budget to sustain the momentum of the public infrastructure boom (Build, Better, More).
₱464.5 billion was likewise allotted to address climate change, which is equivalent to 8.8 percent of the total national budget — higher than its ₱289.7 billion allocation in 2022.
I've always believed that it will take a whole-of-nation approach to slow down the risks and effects of climate change. With the continuous help and support of every Filipino, we can work toward climate resiliency to safeguard a sustainable future for our country.
Beyond budget, financing programs supporting environmentally-sound businesses are imperative. It takes an entire ecosystem that begins with sustainable financing policies to private sector partnerships to realize the emergence of a progressive and resilient future-ready Philippines. *(Amenah F. Pangandaman is the current Secretary of the Department of Budget and Management.)*