By Beting Laygo Dolor, Contributing Editor
The national government was forced to ask the Bangko Sentral ng Pilipinas (BSP, the country’s central banking authority) for a PHP540 billion (about US$10.8 billion) loan to help address the widening budget deficit, made worse by the global coronavirus pandemic.
BSP Gov. Benjamin Diokno told local media last week that the national government “has requested for a fresh provisional advance of PHP540 billion to be settled on or before 29 December 2020, at zero interest.”
The request is expected to be formally submitted to the Monetary Board (MB) as early as this week.
If the MB approves the request, direct provisional advances from the BSP to the national government will reach PHP840 billion (US$16.8 billion), just PHP10 billion short of the PHP850 billion limit.
The national government has been hit by a double whammy of decreased tax collections coupled with heightened expenditures as a result of the Covid-19 pandemic, which resulted in a shutdown of most businesses.
Nearly all sources of revenue were crippled, even as the millions of Filipinos rendered jobless by the shutdown were given one-time cash assistance ranging from PHP5,000 (US$100) to PHP8,000 (US$160).
Businesses, meanwhile, were also granted various forms of financial assistance, which the Duterte administration released in the early months of the shutdown. A second round of assistance was also approved last month, causing a further drain on the government’s resources.
Republic Act 11494, also known as the Bayanihan to Recover as One Act allowed the BSP to lend 30 percent of its average revenue, an increase from the previous limit of 20 percent under Republic Act 7653 or the New Central Bank Act.
The Bureau of the Treasury recently repaid the PHP300 billion (US$6 billion) it borrowed from the BSP last March via a repurchase agreement of government securities.
The second pandemic relief law likewise temporarily raised the cap on advances that the BSP can provide the national government, while extending the repayment period to as long as two years.
A private banker, however, warned of the potential ill effects of excessive borrowing by the government, especially since the BSP is widely expected to provide all the support it can extend during this time of emergency.
Noelan Arbis, analyst of the Hongkong and Shanghai Banking Corp. told local media that the increased additional direct provisional advances could erode the central bank’s credibility as an independent institution from fiscal authorities “if it is repeated beyond the current crisis.”
Arbis said, “For now, the fact that the additional amount is only accessible to the government within the next two years provides a somewhat credible exit strategy.”
For his part, another local banker said the emergency loan to be extended by the BSP to the national government is unavoidable.
Ruben Carlo Asuncion, chief economist of the Union Bank of the Philippines, said the fresh financial assistance would boost the national government’s coffers in its ongoing battle against Covid-19.
“We’re in a crisis,” Asuncion told local media, “And all possible ways to survive this crisis needs to be explored. Of course, it has to be within the rules.”
The country projects this year’s budget deficit to reach to as much as 9.6 percent of gross domestic product. The Philippines is officially in recession and it remains to be seen if it worsens to a full blown depression.
The Philippine government is facing its worst financial crisis in three decades, as the pandemic continues to stifle a return to normalcy. Millions of Filipinos remain jobless, and countless small and medium sized businesses have been forced to shut down permanently.
Before the pandemic, the Philippine economy had grown by a shade under six percent in 2019 and was expected to grow by between six to eight percent this year.