The World Bank has approved a $600-million loan to support the country’s digital technology reforms and adoption to digitalize government operations and services.

The multinational organization announced on Saturday, Sept. 30 (Sept. 29 Washington time), that its Board of Executive Directors has agreed to help finance the Philippines’ first Digital Transformation Development Policy Loan (DPL) to “promote the digital transformation of government and digital infrastructure policies, expand financial inclusion through digital finance, and stimulate the growth of digital services.”

The Philippines has an expanding digital payment transactions. As of end-2022, based on Bangko Sentral ng Pilipinas (BSP) data, about 42.1 percent of payment transactions have shifted to e-payments. This was higher compared to 30.3 percent in 2021. Under the BSP’s Digital Payments Transformation Roadmap, 50 percent of payments in terms of volume should be digitalized by end-2023.

The World Bank said it is “essential for the development of a digital economy” to increase digitalization. It noted that at the moment, 95 percent of over-the-counter payments in grocery stores are still transacted in cash.

Meanwhile, 97 percent of government service payments such as driver's licenses or birth certificate issuance are paid in cash, and about 88 percent of payment for government fees and penalties such as traffic violation tickets are also cash basis.

The World Bank loan will help fund the digitalization of government operations and service delivery as well as to “foster competition in the digital infrastructure markets, and encourage the adoption of digital payments and financial services.” It is also hoped to facilitate reforms for e-commerce, enhance competition and value-added activities in digital services markets, and strengthen skills development in the industry.

The World Bank said it is costly to have heavy reliance on cash payments. In fact it can cost an economy an additional 0.1 percent of general government revenues for handling cash. There are also indirect costs with cash transactions, such as higher risk of fraud and corruption, delays in delivering frontline services, and increased business expenses.

“Internet use in the Philippines has experienced rapid growth in recent years. However, the country has not fully capitalized on the advantages of digital technology, and the high cost of Internet access poses challenges for small businesses in utilizing digital technology and expanding their operations,” said the World Bank.

“As a result, only a small percentage of small businesses have been able to fully embrace digitalization,” it added.

It further noted that only one in three adults still doesn’t have a transaction account with a financial institution. “To help address these concerns, this operation will support reforms that aim to enhance competition and invest in broadband services to reduce the cost and improve the quality of services and increase access,” it said.

The World Bank the DPL is not only in aid of reforms, but it will also extend financial inclusion “more widely” in the Philippines and bring more acceptance of digital payments, especially in businesses to “strengthen trust in digital financial services, and enhance competition in digital financial infrastructure.”

“These reforms will help the authorities expand the reach of digital financial services to underserved and unbanked segments of the population, including women, and facilitate the transition from a predominantly cash-based economy to a digital one," said the World Bank.

It also said that the financing will boost business growth in digital services, e-commerce and encourage competition in digital services markets.

“Digitalization can also drive productivity growth, by reducing operating costs for firms and enhancing their resilience and preparedness for future crises,” according to Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, the Philippines, and Thailand. 

He added that digital technology adoption improves the “efficiency and transparency of government services, empowering individuals who were previously far away from decision-making centers.”

Smita Kuriakose, Lead Economist in the World Bank’s Finance, Competitiveness, and Innovation Global Practice, for her part said, “transitioning to a cashless economy would provide various benefits, especially during climate-related and natural disasters, enabling the government and the private sector to respond swiftly and efficiently.”

“With digital transactions, affected individuals can receive government assistance or insurance payouts promptly, facilitating their recovery and rebuilding efforts,” she added.