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Government readies P1.17-T stimulus, draws up bounce-back program

Updated: Jan 23, 2021

Is this the new normal? In line with the social distancing protocol, shoppers stay about a meter apart as they queue for their turn to buy groceries at Robinsons Supermarket in Fuente, Cebu City. (Ventures Cebu Photo)

Philippine economic managers and monetary authorities are implementing a fiscal and monetary stimulus package worth P1.17 trillion to cushion the adverse impact of the coronavirus disease (COVID-19) pandemic on the economy.

At the same time, Department of Finance (DOF) Secretary Carlos “Sonny” G. Dominguez III said they were drawing up a recovery or bounce-back program to jumpstart the economy after the pandemic is contained.

The Philippine economy, which has been slowing down since 2016, is projected to post zero growth, at best, or contract by -1% this year because of the pandemic fallout, Dominguez said in a press conference with President Rodrigo Duterte shortly after midnight of April 8, 2020.

This is a very conservative estimate given that the National Economic and Development Authority (NEDA), in a report released on March 24, 2020, projected that the economy could contract by as much as -0.6%, as the COVID-19 pandemic halts travel and tourism, subdues manufacturing and reduces consumption of non-essential items.

Related story at: Philippine economy poised for negative growth

The stimulus package will primarily help low-income families and small and medium enterprises (SMEs) tide over the public health crisis, which has prompted the national and several local governments to impose a lockdown.

In locked down areas, such as the entire Luzon and Cebu province, public transportation systems have ground to a halt, majority of the businesses have temporarily shut down and most of the population are required to stay at home.

The government has earmarked about P200 billion in subsidies, a monthly allowance of P5,000 to P8,000 per family for two months, to 18 million low-income families nationwide under the recently enacted Bayanihan to Heal as One Act.

To fund the stimulus package, Dominguez said the Bangko Sentral ng Pilipinas (BSP) has provided P830 billion in liquidity while the government is eyeing to secure up to US$5.6 billion in loans from the Asian Development Bank and the World Bank.

The BSP, in a statement issued on April 10, said it has undertaken “extraordinary” monetary measures to complement the fiscal measures implemented by the government.

1. Purchase of government securities (GS) in the secondary market to reassure market participants that there is a demand for GS should they need to liquidate their holdings.

On March 24, 2020, a daily one-hour window was opened from 9:30 a.m. to 10:30 a.m., within which the BSP could purchase selected series of highly traded and liquid GS from banks at market prices. This window will be open until June 2020, or until market conditions return to normal.

On April 8, 2020, the BSP expanded the eligible securities to cover all peso-denominated GS issuances.

2. Reduction in the overnight reverse repurchase (RRP) volume offering

Beginning April 8, 2020, the BSP scaled down its daily overnight RRP volume offering as necessary depending on liquidity conditions to encourage counterparties to lend in the interbank market or re-channel their funds into other assets such as GS or loans.

3. Repurchase agreement with the national government (NG)

Under this agreement, the BSP shall purchase government securities amounting to P300 billion from the Bureau of the Treasury (BTr). The term of the repo agreement shall be 3 months from the release of the proceeds to the BTr, upon which date the BTr buys back the government securities from the BSP for same amount.

The Monetary Board may extend the repurchase period for a maximum of 3 more months upon due date, if conditions so warrant.

In turn, the national government shall use the proceeds to finance expenditures authorized in its annual appropriation, as deemed necessary to support programs to counter the impact of the COVID-19 outbreak in the country.

These measures complement the actions earlier taken by the BSP:

• the cumulative 75-basis-point reduction in the monetary policy rate since February 2020;

• the 200-basis-point decrease in the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions (NBQBs);

• the timely suspension of the term deposit facility auctions for certain tenors;

• the temporary reduction in the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and

• various time-bound relaxation of various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.

Meanwhile, NEDA ended its online consumer and business surveys on April 8, 2020 for the recovery program that it has been tasked to draw up.

NEDA leads the Technical Working Group (TWG) on Anticipatory and Forward Planning of the the Inter-Agency Task Force (IATF) for the Management of Emerging Infectious Diseases.

Results of the online surveys and public consultations will be used to craft plans and policies that will help stimulate the economy and define a “new normal” of economic activity.

As of April 10, 2020, the respiratory disease has killed 221 people in the Philippines. A total of 4,195 persons have contracted the SARS-CoV-2, or novel coronavirus, which causes COVID-19. Of this number, 140 have recovered from the disease.

Worldwide, SARS-CoV-2 has infected more than 1.5 million people and killed 92,798 as of April 10, 2020. (Ventures Cebu)

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