The Philippines is taking important steps to modernize its financial markets. Beginning Jan. 4, 2027, the country will adopt an international pricing convention for peso-denominated government bonds. Later that month, Philippine government bonds are scheduled to enter J.P. Morgan’s Government Bond Index–Emerging Markets. These developments could broaden the investor base, improve liquidity, and potentially lower government borrowing costs.
These are welcome reforms. They deserve strong support.
But they also raise a more fundamental question: will a more sophisticated financial system translate into more factories, stronger exports, better jobs, and higher productivity?
Not necessarily.
Financial markets can mobilize savings more efficiently, make financing more accessible, and improve the allocation of capital. But businesses will not invest simply because money is available. They also need competitive electricity, reliable infrastructure, efficient logistics, predictable regulations, and confidence that government policies will not change arbitrarily.
This is the distinction we must keep in mind: financial reform can make investment easier to finance, but it cannot, by itself, make investment profitable.
BEYOND GOVERNMENT BONDS
The planned reforms in the sovereign bond market are significant. International pricing conventions can make Philippine securities easier for investors to compare and trade, while index inclusion can encourage benchmark-tracking funds to hold government bonds. Greater participation may improve liquidity and price discovery.
But we should be realistic about the benefits. Index inclusion does not guarantee lower yields or uninterrupted capital inflows. Global interest rates, exchange-rate expectations, and perceptions of fiscal credibility will continue to influence investor decisions.
More importantly, foreign investment in existing government securities is not the same as investment in new factories, machinery, or productive facilities. A government bond market can deepen without a corresponding expansion in the economy’s capacity to produce goods and services.
The economic payoff will depend partly on how the government uses the resources it raises. If lower borrowing costs create fiscal space for productive infrastructure, education, health, and other investments that strengthen the country’s potential capacity and competitiveness, the benefits can extend well beyond the financial system. But if public projects are poorly selected, delayed, overpriced, or undermined by corruption, the opportunity is diminished.
Cheaper financing is an opportunity. Good governance and sound public investment determine how much the country gains from it.
WHERE IS THE CORPORATE CAPITAL MARKET?
The more fundamental challenge is to develop capital markets that serve Philippine businesses, not just the government.
The Organization for Economic Co-operation and Development’s Capital Market Review of the Philippines 2024 highlighted the limited scale of market-based corporate financing. Outstanding corporate bonds amounted to about 11% of GDP at end-2023, while high issuance costs, cumbersome procedures, and limited secondary-market liquidity continued to constrain development.
The implications are practical. Large, established corporations may be able to issue bonds or raise equity, but smaller and mid-sized enterprises often remain dependent on bank loans and internally generated funds. Even businesses with viable expansion plans may find market financing too costly or complicated to pursue.
This matters because companies need long-term capital to modernize equipment, adopt new technologies, expand production, and enter export markets. Banks will remain indispensable, particularly for smaller enterprises, but a deeper capital market can complement bank lending and give businesses more financing options.
The reform agenda should therefore go beyond making securities easier to trade. It should reduce unnecessary issuance costs, simplify procedures proportionately to the size and risks of offerings, improve credit information, and strengthen disclosure and credit assessment. The challenge is to widen access without weakening investor protection.
Capital markets can also help finance economically viable infrastructure through properly structured private debt and public-private partnerships. But these arrangements require transparent project selection, sound risk allocation, credible financial projections, and clear accountability. Mobilizing private capital is not a substitute for good project preparation or responsible government.
The objective is straightforward: make long-term financing accessible to more productive enterprises while ensuring that investors understand and are adequately protected against the risks they assume.
A STOCK MARKET IS MORE THAN AN INDEX
The equity market faces a related challenge. A rising stock-market index or substantial market capitalization does not necessarily mean that companies are raising fresh capital.
There is a difference between trading existing shares and issuing new equity. The former allows investors to buy and sell ownership stakes; the latter directly provides companies with funds for expansion and investment. Both are important, but they serve different purposes.
Limited new listings, concentrated ownership, low free float, and thin trading can make it difficult for investors to enter or exit positions efficiently. These conditions can discourage participation and make public listing less attractive to prospective issuers. Weak liquidity and limited participation can reinforce each other.
This is the Philippine environment.
Addressing these problems requires more than promotional campaigns or new trading technology. Companies must see value in listing, and investors must have confidence in the market. More predictable offering procedures, reasonable transaction costs, credible disclosure, effective enforcement, and fair treatment of minority shareholders can help improve that environment.
The objective should not simply be a higher index or a larger market capitalization. It should be an equity market that helps promising Filipino companies raise fresh capital, supports entrepreneurship and innovation, and allows investors to participate in the country’s economic growth.
BROADEN THE INVESTOR BASE — AND BUILD TRUST
Capital-market development also requires a broader domestic investor base. Foreign participation can bring additional demand, improve price discovery, and diversify funding sources. But the Philippines should not depend on foreign investors alone.
Pension funds, insurers, investment funds, and households can help provide a more stable source of long-term domestic capital. Encouraging their participation requires appropriate investment products, sound governance, financial literacy, and effective supervision.
Above all, investors need trust.
They must believe that corporate disclosures are reliable, minority shareholders are treated fairly, market abuse is addressed, and rules are enforced consistently. Where governance is weak or information unreliable, investors may demand higher returns to compensate for risk, or simply stay away.
Reducing transaction taxes and unnecessary costs can help. But tax incentives alone cannot create a deep market, just as digital platforms cannot compensate for weak investor protection. Market modernization must be accompanied by stronger institutions and greater confidence in the integrity of the financial system.
Trust is not merely an ethical consideration. It influences the cost and availability of capital.
FOLLOW THE MONEY TO THE REAL ECONOMY
Even if the Philippines succeeds in attracting more investors and reducing financing costs, productive investment will remain constrained unless the broader business environment improves.
Manufacturers and exporters need competitively priced electricity, efficient ports and transport networks, skilled workers, reliable infrastructure, and predictable regulations. These conditions directly affect whether a project can earn a reasonable return. They also influence whether businesses choose to expand in the Philippines or invest elsewhere.
Government therefore has a role beyond developing financial markets.
It must improve infrastructure planning and execution, strengthen competition, reduce structural production costs, and ensure that public resources are used transparently and effectively.
Industrial policy can support this effort, particularly where infrastructure, technology, skills, and supplier networks must develop together. But assistance must be transparent, competition-enhancing, and tied to measurable results, not used to protect favored enterprises indefinitely.
The Bangko Sentral ng Pilipinas, the Securities and Exchange Commission, Bureau of the Treasury, and other relevant institutions have complementary responsibilities. They must strengthen market infrastructure, regulation, investor protection, and the channels through which savings reach businesses. Their efforts, however, must be matched by reforms that make productive investment more viable.
Financial reform and structural reform are not competing agendas. They must reinforce each other.
WHAT SHOULD SUCCESS LOOK LIKE?
The success of financial modernization should not be judged solely by trading volumes, market capitalization, foreign participation, or government borrowing costs. These indicators matter, but they are intermediate results.
We should also ask whether more Filipino companies are raising fresh equity, whether creditworthy mid-sized businesses can access long-term financing, whether private investment is broadening, and whether capital is helping firms improve productivity, expand exports, and create better jobs.
The Philippines needs financial markets capable of mobilizing savings efficiently and managing risks responsibly. But it also needs an economy in which productive investment can earn competitive and sustainable returns.
Financial reform opens the channels through which capital flows. Governance, sound economic policy, and productive capacity define how effectively that capital serves the economy.
The ultimate test is not whether Philippine financial markets look more like those of advanced economies. It is whether they help Filipino businesses invest, innovate, compete, and create broader prosperity.
A deeper capital market is a means, not an end. The end is a more productive, competitive, and inclusive Philippine economy.
Financial reform is necessary. But without the reforms that make productive investment viable, it will never be sufficient.
Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.