The country’s economic managers reaffirmed on Tuesday their support for the establishment of the Maharlika Investment Fund (MIF) as a vehicle for growth and an investment for the future.
The economic managers are Finance Secretary Benjamin Diokno, Budget Secretary Amenah Pangandaman, and National Economic and Development Authority Secretary Arsenio Balisacan.
“The MIF is not only beneficial but necessary at this point. While the Philippines can offer investment opportunities, given that we are still a growing economy, we see that the cost of debt has risen, making the need to explore vehicles to attract equity financing such as MIC [Maharlika Investment Corp./MIF urgent,” the group said in a joint statement.
“… The MIC/MIF is an investment for the future that we need to start building now. It is an ideal vehicle and well-positioned to bring in investments as the Philippine economic outlook remains robust amid the global economic slowdown,” they said.
The group cited international investors who have already expressed interest in investing in it, such as the Japan Bank for International Cooperation as well as several US investors, and more are expected once the MIF is officially launched.
“Let it be clear that the Administration remains focused and committed to the vital and urgent national agenda, with the MIF being one of the strategies towards this overarching goal of national development,” they said.
They said the legal framework provided by Senate Bill No. 2020—approved by the Senate and adopted by the House of Representatives—follows fundamental principles of economic policy and financial market participation in favor of and for the ultimate benefit of the Philippine economy and the Filipino people.
They said the Maharlika Investment Corporation and the MIF aim to execute and sustain high-impact infrastructure and development projects, ease fiscal constraints, and maximize expected returns for our country’s investments. The objectives are clear: to invest funds that are available in government instrumentalities and utilize them for investment purposes on the basis of their individual mandates.
They said the MIF Bill was identified as a priority legislative measure of the administration and its Economic Team, along with the Military and Uniformed Personnel (MUP) Bill, among other legislative priorities, recognizing that the said measures provide radical reforms to improve the country’s economic and fiscal standing.
“… This will allow our nation to move away from reliance on foreign and domestic loans to fund our annual budgetary requirements and will move us closer to self-sustainability in sourcing financial requirements. These priorities, along with other measures, are in the Administration’s pipeline and are expected to improve the country’s fiscal resilience,” they said.
As an additional vehicle for financing, the MIF is expected to widen the fiscal space in the near- to medium -term as it reduces heavy reliance on local funds and development assistance as the main financing mechanisms for infrastructure projects. By providing an alternative source to public infrastructure spending, there would be a bigger budgetary allowance for other priority expenditures.
Further, the MIC may invest in capital markets (with an emphasis on generating financial returns) or sectoral investments (with an emphasis on generating economic returns) as a matter of investment strategy and policy that the lawmakers wisely afforded to the MIF Board.
“In principle, even if the MIC initially focuses on capital market investments which emphasize financial returns, this still has a tangible benefit through generation of financial income to the national government which would ultimately redound to the benefit of the nation’s future socio-economic agenda,” they said.
Further, they said investing in the MIC will allow government financial institutions to possibly obtain medium- to long-term returns that are higher than their 10-year average return. For instance, the Land Bank of the Philippines has a 10-year average return on investment (ROI) of 4.23 percent, and the Development Bank of the Philippines (DPB) has a 10-year average ROI of 3.59 percent.
Meanwhile, they said the expected return of Maharlika is estimated to be around 8.6 percent on average, much higher than their cost of capital and the return in their current investment places. This is based on simulations that take into consideration the blend of investment placements between the planned capital market investment sub-fund and sectoral investment sub-fund.
“The public can remain confident in the stability of the LBP and the DBP even given their investment in the MIC. Limitations have also been established, i.e. investments should not exceed 25 percent of their net worth,” they said.
Relatedly, as the achievement of upper-middle income status – a goal under the MTFF – will render the country ineligible to avail of the low-interest loans and grants that are offered to low-income and lower-middle-income economies, the economic managers said the MIF can serve as an alternative funding source to relieve the country from relatively higher interest rates imposed by alternative sources of financing.
They said Senate Bill 2020 imposes enough safeguards to minimize risks for shareholders and fund contributors, including the public sector. These include the adherence to the Santiago Principles; the organization of a risk management committee; accountability measures; oversight; transparency measures; the publication of the terms and conditions of the arrangement with co-investors/joint-venture partners, as well as all financial statements and reports relative to the operations of the co-investment/joint venture.
The Senate has also added another safeguard by introducing the amendment of absolutely prohibiting pension and social funds from contributing to the MIC and MIF. This absolute prohibition is a fiscal risk management measure to ensure that fiscal resources, particularly pension and social funds managed by the Social Security System, Government Service Insurance System, and other pension and social funds are used solely for the purpose for which they were created (i.e., to cater to specific needs of the respective individual members.
The Maharlika Investment Fund Bill was approved by the Senate in the latter part of May 2023. The House of Representatives approved its version in December last year.
Malacañang said it would review the structure of MIF before it is signed into law to make sure that necessary infrastructure projects would be funded by proceeds of the fund.
