Gov't to borrow from BSP again in 2022, but amount will be lower

MANILA, Philippines — The Duterte administration will borrow money again from the Bangko Sentral ng Pilipinas next year to help fund the government’s pandemic response, but the amount would be smaller compared to previous credit lines amid “improved” economic conditions.

In a statement on Thursday, the Department of Finance said it wrote a letter to BSP Governor Benjamin Diokno about the government’s plan to borrow P300 billion from the central bank next year, which is lower compared to the outstanding P540-billion financing that the state would repay in full ahead of the January 12, 2022, due date.

The DOF would request for the fresh credit line in the second week of January next year. Under the New Central Bank Act, the BSP could lend money to the government — with or without interest — to finance national spending, provided it would be paid before the end of three months. 

The new P300-billion debt would have similar terms as the earlier loans from the BSP: it would have zero interest and would be payable in three months, which could be extended by another three months.

“We have seen economic recovery already begin to take root as more businesses embark on a safe reopening with the successful rollout of the government’s mass vaccination program,” Finance Secretary Carlos Dominguez III said in his letter to Diokno dated December 1.

“The extension of a new P300-billion provisional advances will ensure sufficient resources for the government to safeguard this promising but still fragile recovery,” Dominguez added. 

The central bank has become a critical cash source for the Duterte administration as the economic fallout from the pandemic dried up public coffers amid dismal tax collections. In March last year, when coronavirus lockdowns were at their tightest, the BSP bought P300-billion worth of government bonds to augment the state’s pandemic war chest.

After paying back the bonds in September last year, the government borrowed P540 billion from the BSP in October 2020 at zero interest. The old loan matured in December last year and the government requested to renew the credit line in January this year and had it extended until April, before paying the debt in July.

The latest access of provisional advances was in July this year, which was due in October and extended to January next year. But this will be fully repaid on December 10 or ahead of the maturity date as recommended by National Treasurer Rosalia De Leon “to fully unwind the liquidity support before the start of the next administration.”

But more than rising liabilities, analysts earlier raised red flags over BSP renewed lending to government, which they said has put the central bank’s independence — and its goal of ensuring inflation remains stable — at risk of getting eroded. For one, cash from government borrowings can feed to the broader financial system and fan inflation.

For Jun Neri, lead economist at Bank of the Philippine Islands, the early repayment of these cash advances means that the economy is indeed recovering. 

“It is a welcome reduction as it signals that emergency measures are temporary and no longer necessary for economies that are clearly on the way to recovery,” Neri said in a Viber message. “Without an exit mechanism, market confidence on the independence of monetary policy from government financing may be completely eroded.”