Gov’t vows to hit spending target
Domestic liquidity or the country’s money supply is expected to reach doubledigit levels within the first half of 2020 due to higher government spending coupled with the release of fresh funds from banks’ lower reserve requirements, according to a central bank senior official.
“(The) liquidity growth has began to recover (and) we’re anticipating it will accelerate some more,” said Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr. “Our forecast for 2020 is an increase in liquidity growth to the lower double-digit levels so it will be more in line with the growth needs of the economy.”
Dakila said higher domestic liquidity will return and it will come from “a lot of several factors including cuts in reserve requirement ratio (RRR) and also from the acceleration in government spending.”
He said he is not worried that an influx of money supply – which is broadly measured as M3 – in the financial system will have no place to go other than back in the BSP’s fixed-income open market operations, namely the weekly term deposit facility (TDF) or the RRP market.
Dakila said as the economy expands, banks will have more projects to invest in and more borrowers to lend big money to, and not all of new liquidity will find their way back to the BSP.
The demand for projects that require financing will depend on how fast the economy is growing, he said. He also does not see what he called “several simultaneous factors that led to slowerthan-expected growth in the first half of the year” as happening again next year as funds flow into the system.
“We have seen acceleration of growth to 6.2 percent in the third quarter … the economy is starting to pick up (so) you should have more demand for liquidity,” said Dakila.
The BSP on Friday reported that M3 grew by 8.5 percent year-on-year in October to ₱12.1 trillion, a faster pace of growth compared to September’s 7.7 percent. On a month-on-month seasonally-adjusted basis, money supply went up by 0.9 percent.
The BSP said there was sustained growth in credit to the private sector as evidenced by loans for production activities and for household consumption.
The last time M3 was in the low double-digit level was August 2018 at 10.5 percent. By the end of 2018, M3 stood at 9.5 percent after the BSP cut RRR by 200 basis points (bps).
In 2019, the central bank again reduced RRR by 400 bps and the last 100 bps of the 400 bps total will take effect on Friday, December 6. Including adjustments to reserve requirement to bonds and on deposit substitutes, the reduction in RRR released about ₱450 billion into the financial system this year.
For this year however, M3 has dipped to its lowest level of 6.1 percent growth last March before slowly climbing to 8.5 percent by October.
ING Bank senior economis Nicholas Mapa said the RRR cuts, on top of the fresh peso liquidity from the BSP’s foreign exchange operations, have “boosted the amount of liquidity circulating in the financial system.” He said the “surge in government spending also helped released a fresh round of funds back into the financial system with expenditure growth remaining positive in September and October.”
But, Mapa said, even with the influx
The country’s economic managers are confident of hitting the government’s spending target this year as President Rodrigo R. Duterte gave his go-ahead for the implementation of seven new infrastructure projects worth ₱187.34 billion mainly located outside Metro Manila.
Finance Secretary Carlos G. Dominguez III, head of President Duterte’s economic team, said “We are confident that we are going to hit our spending target for this year” amounting to ₱3.77 trillion despite earlier’s budget delay and election ban.
Based on the report by the economic development cluster headed by Dominguez, public spending amounted to ₱2.938 trillion at end-October, or 78 percent of this year’s target.
“To attain our target disbursement of ₱3.77 trillion in 2019, the government needs to disburse ₱832 billion or 22 percent for the remaining two months of the year,” said Dominguez, who vowed to keep abreast with this spending rate.
The finance chief also revealed that government disbursements for of liquidity, bank lending has decelerated, posting a 9.3 percent gain in October, down from the 10.5 percent expansion in the previous month.
“Despite the copious amount of liquidity released of late, demand for loans remains lackluster with investors infrastructure and other capital outlays reached ₱628.5 billion in the 10-month period, equivalent to 73 percent of the 2019 full-year program of ₱859.5 billion.
For this reason, Dominguez is optimistic that the country’s economy, as measured by its gross domestic product (GDP), will grow at a higher clip in November and December amid sustained spending on infrastructure and human capital development projects.
This means the Duterte administration will “make up for underspending earlier this year as a result of a reenacted budget.”
“Overall, we remain on track to reach our GDP growth target of 6 to 7 percent in 2019,” he assured.
To support the infrastructure spending, the National Economic and Development Authority (NEDA) Board chaired by President Duterte has also approved seven new projects amounting to ₱187.34 billion.
Socioeconomic Planning Secretary Ernesto M. Pernia said that five of these new projects will be implemented outside Metro Manila in line with their plan to “develop growth centers in the regions and maximize the economic opting to wait for lower borrowing costs now that inflation is sub-target. It’s becoming clearer that policy adjustments must be done in tandem with RRR reductions working together with policy rate cuts to help entice and foster investment activity,” he said. benefits of connectivity of communities.”
These projects include the Davao public transport modernization as well as two unsolicited proposals for the New Bohol Panglao International Airport, and build-operate-transfer plan for the Ninoy Aquino International Airport (NAIA).
The Davao public transport modernization project involves the delivery of a modern, high priority bus system (HPBS) for the southern city, while New Bohol International airport covers operations and maintenance as well as enhancement of the airport.
On the other hand, NAIA rehabilitation project will address Metro Manila’s main air gateway’s capacity issues and cover the renovation of its existing terminals as well as the enhancement of its operation and management.
The other four new projects include Pasacao-Balatan coastal tourism highway, Samal Island-Davao City connector, Camarines Sur high-speed highway and the development objective assistance agreement covering the health services for underserved Filipinos.