THE government’s economic team and the Bangko Sentral ng Pilipinas (BSP) have prepared a massive fiscal and monetary action plan worth P1.17 trillion to mitigate the economic fallout from the coronavirus disease (Covid-19) pandemic.
The value of the entire package is equivalent to between 5.0 percent and 6.0 percent of the gross domestic product (GDP), Finance Secretary Carlos Dominguez III said in a late-night address together with President Rodrigo Duterte and other Cabinet members on Wednesday, April 8, 2020.
“We have a long breakdown of how we have this program, but mostly it was to provide subsidies to low-income families and workers of the small and medium enterprises,” Dominguez said.
He said the central bank, or BSP, has provided P830 billion in liquidity to the economy, which is headed for a contraction or a zero growth, at best.
In a statement Friday, April 10, the BSP said it has undertaken “extraordinary” measures to complement fiscal measures being undertaken by the government to mitigate the economic impact of the Covid-19 pandemic.
These measures are aimed at shoring up market confidence, ensuring liquidity for the proper functioning of the financial market and preventing serious repercussions on the economy over the medium term.
“By ensuring sufficient liquidity in the financial system, the BSP aims to assist our financial intermediaries in responding to the needs of Filipino households and businesses amid these challenging times,” the central bank said.
BSP measures
As of April 10, BSP measures that have been implemented are as follows:
> Purchase of government securities (GS) in the secondary market.
The BSP opened on March 24, 2020 a daily one-hour window, 9:30 a.m. to 10:30 a.m., within which it could purchase only selected series of highly traded and liquid GS from banks at market prices.
Beginning April 8, 2020, eligible securities were expanded to include all peso-denominated GS issuances. The one-hour window will be open until June 2020, or until market conditions return to normal.
“The measure is aimed at reassuring market participants of demand for GS should they need to liquidate their holdings, thus encouraging participation in the GS auctions,” the BSP said.
> Reduction in the overnight reverse repurchase (RRP) volume offering
Beginning April 8, 2020, the BSP scaled down its daily overnight RRP volume offering as necessary depending on liquidity conditions to encourage counterparties to lend in the interbank market or re-channel their funds into other assets such as GS or loans.
> Repurchase agreement with the national government (NG)
Under this agreement, the BSP purchases government securities from the Bureau of the Treasury (BTr) amounting to P300 billion. The term is three months from the release of the proceeds to the BTr, after which the BTr buys back the government securities from the BSP for the same amount.
The Monetary Board may extend the repurchase period for a maximum of three more months upon due date, if conditions so warrant.
The government may use the proceeds to finance programs to counter the impact of the Covid-19 outbreak in the country.
Earlier, the BSP also eased monetary policies in a bid to cushion the impact of the pandemic.
These included the cumulative 75-basis-point reduction in the monetary policy rate since February 2020; the 200-basis-point decrease in the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions (NBQBs); the suspension of the term deposit facility auctions for certain tenors; temporary reduction in the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxation of various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.
Economy
Dominguez has assured that the country is “very well prepared” to address the impact of the Covid-19 outbreak, noting that the economy has grown by an average of 6.4 percent under the Duterte administration.
He failed to note, however, that GDP growth has been declining, with the country posting a 5.9 percent growth in 2019, the first GDP growth below 6.0 percent since the 3.7 percent in 2011.
The economy grew by 6.8 percent in 2016, 6.7 percent in 2017 and 6.2 percent in 2018.
This year, the Finance chief said growth could be zero or minus one percent.
“Itong (This) Covid-19 has hit us in a very hard way. Ang katotohanan lang ang estimate natin, (The truth is that we estimate) our GDP growth will be zero or minus 1 percent,” he said.
He said 1.2 million workers will be displaced and budget deficit could worsen to 5.3 percent of the GDP from the current 3.2 percent as the government spends more than its revenue collections.
“We will be spending more than we will be collecting. But we are spending more in order to save the people and make sure that they have food on the table during this time,” he said.
On the bright side, Dominguez said the government can readily acquire loans necessary to bridge the budget deficit in the fight against Covid-19 as he noted that the Philippines’ credit rating has improved to BBB+, the “highest ever” rating received by the country.
The government is negotiating for US$5.6 billion worth of loans from the Asian Development Bank and the World Bank to finance programs related to its Covid-19 response.
Dominguez said taking out more loans this year could raise the debt-to-GDP ratio to 47 percent, but said this is still low compared to those of neighboring countries. At present, debt-to-GDP ratio is a low of 41 percent.
The number of novel coronavirus infections in the country has passed the 4,000 mark.
As of April 10, the virus officially known as Sars-CoV-2 has infected 4,076 persons in the Philippines.
The Department of Health (DOH) said 203 patients had died while 124 have recovered. (MVI/SunStar Philippines)