BSP advances to gov’t to cease when economy recovers

THE CENTRAL BANK’S direct advances to the National Government are not considered as debt monetization and are temporary in nature due to the coronavirus crisis, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“No it’s not [debt monetization]. We’re not monetizing. This will not be a permanent feature of the fiscal and monetary relationship,” Mr. Diokno said in a briefing on Thursday.

He said the BSP’s direct advances to the National Government are considered as bridge financing to support state spending for its coronavirus pandemic response at a time where tax collections have seen a decline.

“We expect that the economy will fully recover in the middle of 2022. We expect that this accommodation will cease at that time,” he added.

Under Republic Act (RA) No. 7653 or the New Central Bank Act, the BSP is allowed to provide up to 20% of its average annual revenue — equivalent to P540 billion — to the National Government as direct advances.

This ceiling was increased to 30% or about P820 billion through the provisions of RA 11494 or the Bayanihan to Recover as One Act to help boost government liquidity for its pandemic response.

The BSP Monetary Board in December approved another P540 billion zero-interest direct advance to the National Government. This was after the central bank bought P300 billion in government securities in March and also granted a P540-billion advance in October.

“They have not accessed that [fresh P540-billion advance] yet. I think they will access that anytime soon,” Mr. Diokno said.

The central bank chief said these direct advances from the BSP will help the government save on interest payments.

“That would be less expenditures… That’s why the central bank provided advances to the National Government,” he said.

Mr. Diokno, a former Budget secretary, stressed the need for fiscal measures for economic recovery.

“The good thing about fiscal policies is that they can really target who can benefit from fiscal spending or tax cuts, etc. So there’s still room for more targeted and more intensive fiscal policy,” he said.

Fitch Ratings earlier this week warned that an extension of the BSP’s financing to the National Government “beyond immediate needs of the health crisis could undermine investor confidence and financial stability by raising questions about the independence of monetary policy making.”

The country’s pandemic response reached $21.645 billion or about 5.9% of gross domestic product (GDP) in 2020, based on the policy database of the Asian Development Bank.

While this was the sixth largest in the region in terms of value, this is small relative to the size of the economy as pandemic packages in Singapore, Malaysia, and Thailand accounted for about 25%, 23% and 16% of their respective GDPs. — L.W.T. Noble

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