The Bangko Sentral ng Pilipinas (BSP) approved last Dec. 16 a P300-billion, zero-interest facility for the national government to sustain support for economic recovery in 2022.
BSP Governor Benjamin Diokno said in a press briefing the approval by the Monetary Board (MB) was done shortly after the national government fully settled on its outstanding obligations to the BSP of P540 billion, the extended maturity of which falls on Jan. 12, 2022.
“In approving the national government’s request, the Monetary Board recognized that fiscal authorities still need to continue using available policy space in order to support the economic recovery through targeted initiatives such as social safety nets as well as through the acceleration of the vaccination program and the recalibration of quarantine protocols,” Diokno said.
“These interventions are especially crucial to sustain the economy’s momentum, given the significant downside risk to growth linked to the spread of new COVID-19 variants,” he added.
Provisional advances are a temporary arrangement between the BSP and the national government to provide the latter access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale of the borrowing need as well as the unpredictability of financial markets amid the pandemic.
In December, Finance Secretary Carlos Dominguez III in a letter addressed to Diokno said the request for a lower amount of P300 billion as provisional advance signals to the market “that we are on track with the unwinding of liquidity support on firmer evidence of return to economic strength.”
‘Pandexit’
Regarding the unwinding of overall measures that support efforts to address the economic impact of the pandemic, Diokno said the timing for such a “Pandexit” remained very much uncertain.
“The threat of further COVID-19 infections continues to pose a downside risk to both growth and inflation in the coming months,” the BSP chief said. “Therefore, we deem it prudent to leave some room for flexibility in policymaking to account for uncertainty and risk, especially as the situation remains very fluid.”
Diokno said the timing and conditions under which the BSP will start unwinding its pandemic-induced interventions will continue to be guided by the inflation and growth outlook over the medium term and the risks surrounding such outlook.
“Consistent with the BSP’s data-dependent approach to policymaking, the BSP will continue to monitor the evolution of various domestic factors as well as emerging global developments and potential spillovers,” he said.
“When these developments warrant a scale-down of policy support as economic recovery gains traction, the BSP will ensure a smooth transition in winding down its time and state-bound measures,” he added.
Diokno said that in deciding to scale back BSP liquidity-enhancing measures, the BSP needs to strike a delicate balance between providing adequate stimulus to the economy and preventing the build up of inflationary pressures and risks to financial stability.
“Given the nascent economic recovery, the priority for the BSP is to ensure the sustainability of the recovery and prevent long-term scarring effects,” he said.