The Asian Development Bank Institute (ADBI) has proposed the use of “kicker bonds” to boost infrastructure revenues in developing countries, including the Philippines.
In an Asian Development Blog (ADB) posted on Wednesday, ADBI Dean Naoyuki Yoshino and Legal Advisor Grant Stillman said the infrastructure needs of developing countries, like the Philippines, cannot be borne exclusively by the government.
Yoshino and Stillman added tapping private-sector funds, such as through the issuance of kicker bonds can provide the much needed resources to finance trillions worth of infrastructure needs.
“An infrastructure bond that can tap future tax revenues and share a fair proportion of the newly reaped revenue streams with the original investors could solve this problem. We have nicknamed it a ‘kicker bond’ in honor of Oregon’s tax-rebate system, in which budget surpluses are returned to state taxpayers,” Yoshino and Stillman said.
However, Yoshino and Stillman added kicker bonds have not yet been used. Nonetheless, they said the idea to create these bonds came from the experiences of Japan, the US and Europe.
Initially, Japan and the US sold or allowed the development or even granted rights to use real estate surrounding big-ticket infrastructure projects, such as railways to the private sector to boost tax revenues once the projects have been completed.
However, Yoshino and Stillman said this is harder to implement today since most of the available land is already occupied and, as such, cannot be given to the private sector.
The issuance of the kicker bonds will not necessitate the granting of land or land use to any private company. For their investment, the private sector can reap their returns once the bonds mature.
There was a similar measure done in Europe where the government issued five-year immunization bonds. The bonds were backed by government contributions pledged over a 20-year period.
This ensured higher yields of up to 30 basis points and enabled the collection of more funds for much-needed immunization needs.
“Financial engineering is driven by new approaches to old problems, as the surprising success of green bonds and social or development impact bonds has shown us. Hopefully, the time of the kicker bond for infrastructure has arrived,” Yoshino and Stillman said.
The ADB said the 45 developing member-countries must invest $26.166 trillion until 2030. This translates to $1.744 trillion, or 5.9 percent of the region’s GDP annually.
ADB said Southeast Asian economies need to invest 5.7 percent of GDP until 2030. This means investing a total of $3.147 trillion between 2016 and 2030 using 2015 prices and an annual investment of $210 billion until 2030.
In the Philippines, National Economic and Development Authority (Neda) said infrastructure funds are most needed in addressing the infrastructure gap in paved provincial roads in terms of kilometers (km) is 71.4 percent.
This means of the 36,075 km, only 28.7 percent, or 10,353.53 km, of provincial roads have been paved. The country still needed around 25,721.48 km to pave all subnational roads.
Neda data also showed that funds are also needed to address the infrastructure gap in paved city roads was at 38.2 percent, of 15,376 km of city roads. This means only 61.8 percent, or 9,502.37 km, have been paved.
The infrastructure gap in barangays covered by municipal recycling facilities was also significant at 46.2 percent. In terms of barangays covered by solid-waste management facilities, the gap is at 36.1 percent.
Double-digit infrastructure gaps were also observed in Mindanao’s household electrification level at 27.6 percent; access to broadband in cities and municipalities, 23.6 percent; and access to irrigation service, 13.6 percent.