By Luz Wendy T. Noble, Reporter
THE BANGKO Sentral ng Pilipinas (BSP) is open to extending loans to the National Government (NG) “for as long as necessary” in order to support the economy’s recovery, BSP Governor Benjamin E. Diokno said.
“The BSP would be willing to extend bridge financing to the National Government for as long as necessary, needed, as long as extraordinary times exist, in accordance with revised charter of the BSP. This move does not constitute as monetizing the budget. The advance is capped and time-bound,” Mr. Diokno said in a Viber message.
In July, the Monetary Board extended the maturity of the P540-billion short-term, no-interest loan to the National Government. It is expected to be repaid in October. This was the fourth time the BSP granted direct advances to the government since the pandemic.
Republic Act 7653 or The New Central Bank Act allows the BSP to lend 20% of its average revenue to the government, which is equivalent to P540 billion. This was increased to 30% or up to P850 billion by the Republic Act 11494 or the Bayanihan to Recover as One Act, which allowed direct provisional advances within two years since the law’s effectivity.
“The direct advance to the National Government during these extraordinary times has been adequately and clearly communicated to the public. It does not diminish the independence of the BSP,” Mr. Diokno said.
The International Monetary Fund (IMF) has stressed the need for continued policy support from the central bank alongside fiscal response amid the prolonged crisis.
“Specifically, monetary policy should remain supportive given the temporary nature of the recent inflation pressure, and fiscal policy should focus on steadfast implementation of the 2021 budget to ensure an appropriately expansionary fiscal stance,” IMF Representative to the Philippines Yongzheng Yang said in an e-mail.
However, the IMF recommended a “gradual phasing out of direct budgetary financing” to keep the BSP’s operational capacity and independence.
“The phasing out of direct budgetary financing should be the first step in the process of policy normalization when economic recovery takes hold,” Mr. Yang added.
Last week, Mr. Diokno said the economy may regain its pre-pandemic aggregate level by the fourth quarter of 2022 or even the first quarter of 2023.
“The structure or the composition of that economy will be much different from the pre-COVID-19 economy,” Mr. Diokno said.
The government lowered its full-year gross domestic product (GDP) growth target for 2021 to 4-5% from 6-7% previously, citing the impact of the new lockdown in August and the recent Delta-driven surge in coronavirus cases.
The central bank has been at the forefront of pandemic relief efforts. After cutting the key rate by 200 basis points in 2020, the BSP has maintained it at a record low of 2%, citing the need to support the economic recovery. It has also reduced the required reserve ratio by 200 basis points.
The Monetary Board will have a policy review meeting on Sept. 23.