World Bank approves $600M loan for Philippines’ digital transformation

Washington-based multilateral lender World Bank has approved a $600-million policy loan financing scheme to support the Philippine government’s digitalization initiatives.

In a statement on Saturday, the World Bank said its Board of Executive Directors approved the amount for the Philippines’ First Digital Transformation Development Policy Loan.

The loan program aims 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 multilateral lender said.

It added that the financing scheme will also help the Philippine government digitize operations and service delivery, foster competition in the digital infrastructure markets, and encourage the adoption of digital payments and financial services.

Moreover, the program will facilitate reforms to promote e-commerce, enhance competition and value-added activities in digital services markets, and strengthen skills development in the industry.

“Greater adoption of digital technology can improve the efficiency and transparency of government services, empowering individuals who were previously far away from decision-making centers,” said Ndiamé Diop, World Bank country director for Brunei, Malaysia, the Philippines, and Thailand.

“Digitalization can also drive productivity growth, by reducing operating costs for firms and enhancing their resilience and preparedness for future crises,” said Diop.

Digital economy

The World Bank noted that widespread adoption of digital payments in the Philippines is essential for the development of a digital economy, benefiting millions of citizens and small businesses.

The lender said that currently, cash is the dominant form of payment for over-the-counter purchases in grocery stores at 95%, government service payments such as driver's licenses or birth certificate issuance at 97%, and government fees and penalties like traffic violation tickets at 88%.

“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,” said Smita Kuriakose, lead economist in the World Bank’s Finance, Competitiveness, and Innovation Global Practice.

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

The World Bank said that globally, economies that rely heavily on cash payments can incur costs of up to 0.1% of general government revenues for handling cash.

The lender said there are also indirect costs associated with cash transactions, including a higher risk of fraud and corruption, delays in delivering frontline services, and increased business expenses.

Internet Access

The World Bank added that while internet use in the Philippines has experienced rapid growth in recent years, 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.

This, as only a small percentage of small businesses have been able to fully embrace digitalization.

The lender said approximately one in three adults still doesn’t have a transaction account with a financial institution.

The bank added that the program 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.

To extend financial inclusion more widely among individuals and businesses, the World Bank said the loan will support reforms that promote broader acceptance of digital payments, 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. To boost business growth in digital services, this development policy loan will also support reforms that promote the uptake of e-commerce by consumers and businesses and promote competition in digital services markets,” the lender said. —VAL, GMA Integrated News