National government to borrow another P540B from BSP

MANILA, Philippines—The Philippine government has asked for a new loan of P540 billion from the central bank—the maximum allowed by the previous stimulus law meant to fight the coronavirus pandemic— with the same terms as the previous borrowing.

In a mobile phone message to reporters, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the request has yet to be approved “but will be submitted to the Monetary Board soon.”

“The national government has requested for fresh provisional advance of P540 billion to be settled on or before December 29, 2020, at zero interest,” he said.

The new economic stimulus package passed by Congress and signed by President Rodrigo Duterte recently raised the amount that the central bank can lend to the national government to 30 percent of its average revenue, up from 20 percent under the central bank charter.

This effectively raises the amount of loans the BSP can extend to the national government to P850 billion, from the previous P540 billion.

Last March, the BSP unveiled a massive stimulus program for the national government’s fight against the coronavirus pandemic, by lending P300 billion to the Bureau of the Treasury.

The BSP statement said the Monetary Board allowed the central bank to purchase P300 billion in Treasury securities “under a repurchase agreement” payable in six months.

“The fund generated from the said agreement shall be used to support the national government’s programs to counter the impact of the coronavirus disease,” it added, explaining the workings of the regulator’s newly restored ability to conduct open market operations.

Under the scheme, the Treasury issued debt securities which the central bank bought. The money that the Treasury received from this transaction was used to fund the government’s public health spending.

The debt securities mature this month and Finance Secretary Carlos Dominguez III told reporters that the amount would be repaid.

The central bank’s open markets operations — where the regulator could inject into or drain cash from the financial system by buying or selling debt securities — was taken away when the law creating the BSP was enacted in 1993 to replace the bankrupted Central Bank of the Philippines.

Congress restored this power, along with the BSP’s ability to issue its own debt securities in the most recent amendment of the central bank’s charter, enacted in February 2019.

Edited by TSB