Strong economic fundamentals can address Covid-19 challenge

MANILA – The government’s budget deficit and spending will exceed the program this year because of the need to address the impact of the coronavirus disease 2019 (Covid-19), but Finance Secretary Carlos Dominguez said domestic fundamentals remain strong and can address this challenge.

In an interview by Bloomberg TV Wednesday, Dominguez said the enhanced community quarantine and the ban against the entry of foreigners for the meantime will have “very serious effects” on the livelihood of the people.

He said this is the reason why President Rodrigo R. Duterte asked for emergency powers to be able to realign funds from both within this year’s national budget and outside of the budget which are with government-owned corporations to use to support the people who have lost their livelihood during the period of lockdown.

To date, the government has announced an initial stimulus package amounting to PHP27.1 billion to be used for the acquisition of equipment and medical supplies to address Covid-19 cases, as well as support for workers both in the tourism and non-tourism sectors who were not able to work due to the pandemic.

The Bangko Sentral ng Pilipinas (BSP) has also agreed to purchase PHP300 billion worth of government securities from the Bureau of the Treasury (BTr), under a repurchase agreement to be paid within six months, to augment funds.

Another measure aimed to support the economy is the reduction in universal and commercial banks’ (U/KBs) reserve requirement ratio (RRR) by 200 basis points effective March 30, 2020, which is seen to ensure additional PHP200-billion liquidity into the system.

Dominguez said they are also in talks with lenders for a USD1-billion borrowing to further increase government funds for programs to address the economic and health impact of Covid-19.

“The talks are going well and these will go a long way to support our efforts to combat this virus,” he said.

Dominguez said they are going to tap all markets, citing confidence that the government is “prepared, very well prepared to increase our debt levels.”

“As you know we have reduced our debt levels from over 70 percent of GDP (gross domestic product) to only 41 percent of GDP now. So we are in a very good position to combat this coronavirus and we have the debt capacity to do that,” he said.

The National Economic and Development Authority (NEDA) estimates that total loss from the impact of the pandemic on the economy’s supply and demand side amounts to about PHP428.7 billion to PHP1.3555 trillion.

In terms of GDP, the NEDA estimates the figure to be around -0.6 percent to 4.3 percent this year.

“The way it looks it all depends on how long this emergency will last. And we are certainly looking at a drop in our GDP growth possibly to one half of one percent negative. That’s assuming that it will last the whole year and we do nothing,” Dominguez said.

In 2019, domestic output slowed to 5.9 percent from previous year’s 6.2 percent due to the delay in the approval of the national budget, which was only signed on April 15 last year.

Government revenues are seen to be lower and the budget deficit is forecast to be higher than the programmed 3-3.6 percent of GDP, Dominguez said.