The unwinding of the central bank’s relief measures to combat the coronavirus disease (COVID-19) will be “data-driven, done gradually and prudently, and communicated properly to all stakeholders,” according to Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor.

In an online press conference yesterday, Diokno said “timing is critical to the exit strategy.”

“(BSP’s exit strategy) will be determined by the data that we will gather on inflation as well as on the capital and liquidity of banks and the financial system, which are essential to the decision-making process,” Diokno said.

Amid the pandemic, the BSP has deployed  measures to keep liquidity and credit flowing to households and businesses. These include the reduction in the overnight policy interest rate by a total of 175 basis points and lowering by 200 basis points of banks’ reserve requirements.

The BSP also implemented additional modes of compliance to encourage bank lending to micro, small and medium enterprises affected by the pandemic.

The BSP has entered into a three-month repurchase agreement with the Bureau of the Treasury to provide bridge financing to the national government’s programs to counter the impact of COVID-19.

Measures to extend financial relief to borrowers, incentivize bank lending, promote continued access to financial services, and support continued delivery of financial services were also implemented.

Diokno presented a BSP working paper, “Exit Strategies: How Do We Proceed?” which explained the “exit entails a reversion to policies that are consistent with the long-run economic growth path.”

“The paper said the process should neither cause premature withdrawal of support nor give rise to delays in necessary structural economic reforms,” Diokno said.

The paper described a four-phase macroeconomic policy response to the pandemic.

Phase 1 covered the declaration of public health emergency and community quarantines, during which the BSP issued COVID-19-related measures.

Under Phase 2, which Diokno said the country is now under, some economic sectors are allowed to operate while observing strict health protocols.

Phase 3 assumes the availability of an effective remedy to lessen COVID-19 infections and fatality rate, and that all economic sectors are allowed to fully operate.

Under Phase 4, the economy is back to the pre-COVID-19 growth path.

“The paper highlighted the need for reforms to further enhance economic resilience, such as the continued deepening of capital markets and legislative measures promoting the use of electronic financial services,” Diokno said.

He explained that reforms on electronic financial services include measures institutionalizing national interoperable bills payment service; and mandating the adoption of e-invoicing system by corporations and big businesses and issuance of electronic official receipts.

These also include measures mandating relevant government institutions to bolster the country’s telecommunications infrastructure critical in the delivery of electronic financial services; the passage of the E-Government Act; and amendments to the Consumer Act or the passage of a law to govern e-commerce.

During the press conference, Diokno also stressed the BSP is strengthening its literacy campaign to enhance public trust in the digital finance ecosystem and promote the use of digital financial services among Filipinos.

The Bankers Association of the Philippines (BAP) yesterday through a statement assured the public the country’s financial system is “sound” and that “very strict rules regarding the issuance of bank certifications are in place.”

BAP is the lead organization of universal and commercial banks in the Philippines consisting of 45 members, 21 of which are local banks and 24 are foreign bank branches.

BAP said it is encouraging the public to practice “due diligence in receiving certifications and documents from third parties by having them validated by the issuing bank.”

“Some individuals may try to forge or falsify these documents, but their authenticity can be readily ascertained through careful scrutiny or verification by the appropriate institutions,” BAP said.

“We continue to work with the Bangko Sentral ng Pilipinas and other government agencies to improve our processes and our member banks are regularly and proactively strengthening security checks and systems to ensure integrity at every level,” BAP stressed.

The statement came after German financial firm Wirecard, two weeks ago, claimed $2.1 billion of its money were deposited in two of the country’s biggest banks, BDO Unibank and Bank of the Philippines Islands (BPI).

The two banks have denied this, stressing that Wirecard was not a client nor did they have any business relationship with the German firm.

BDO and BPI also informed Ernst & Young (EY), the external auditor hired by Wirecard, that “the documents that attested to the presence of the supposed funds were spurious.”

Last week, Wirecard said the missing $2.1 billion “probably didn’t exist” and filed for insolvency, owing creditors almost $4 billion that its auditor EY said was the result of a “sophisticated global fraud.”

As overseas Filipino workers (OFWs) are repatriated and displaced due to the new coronavirus disease 2019 (COVID-19) pandemic, the Bangko Sentral ng Pilipinas (BSP) yesterday said remittances are likely to contract by 5 percent this year.

This will bring the cumulative total to $28.6 billion, $1.5 billion lower than the $30.1 billion total posted in 2019.

Remittances, according to economists, have become the single most important source of foreign exchange to the economy and a significant source of income for recipient families.

Benjamin Diokno, BSP governor, said the impact of the contraction is “estimated at around 0.4 percent of gross domestic product (GDP) but on consumption.”

The 2019 total boosted household income and consumption and accounted for 9.3 percent and 7.8 percent of GDP and gross national income, respectively.

This will be the first year in two decades that remittances will post a decline. The last time was in 2000 due to the Asian financial crisis in late 1990s.

Diokno said the contraction is due to the repatriation of a large number of both land-based and sea-based OFWs and recession in host countries as a result of the health crisis.
But Diokno said the decline in remittances is “expected to be temporary.”

“Remittances are projected to grow by 4.0 percent in 2021 as demand for Filipino workers resumes and as coronavirus-affected host countries recover,” Diokno said.

He explained that OFWs are widely employed in economies that have been badly affected by the global health crisis, including the US, UK, Euro area, Japan and countries in the Middle East.

“The pandemic-induced disruption in economic activity in host countries has led to the repatriation and displacement of OFWs. In addition, travel bans and lockdowns were imposed by host countries and the Philippines has restricted OFW deployment,” Diokno said.

The government has recently allowed OFW deployment, except for health workers.

“BSP fully supports government initiatives to promote the welfare of overseas Filipinos (OFs). The BSP also continues to pursue various initiatives to help improve the OF remittance environment through enhancing transparency and fostering competition in the remittance market; promoting efficient and speedy transfer of funds to beneficiaries particularly in remote areas of the country; encouraging OFs and their families to increasingly channel remittances into savings and investments; and cultivating financial learning among overseas Filipinos and their families,” Diokno said.

Cash remittances that are coursed through banks declined by 4.7 percent to $2.397 billion in March 2020, from $2.514 billion in March 2019.

The decline in cash remittances in March was largely due to the lesser number of Filipinos deployed overseas in the first three months of 2020, relative to the comparable level last year.

The countries that registered the declines in cash remittances in March were mostly from oil producing countries (Saudi Arabia, United Arab Emirates and Kuwait) where demand for workers were affected by depressed oil price in the world market.

Cash remittances for the first quarter of 2020 managed to post a modest increase of 1.4 percent to $7.403 billion, from the $7.299 billion registered in the same period last year.

CREDIT rating agency Standard & Poors Global late Friday maintained its BBB+ long-term credit rating with a stable outlook on the Philippines “in recognition of the country’s sound macroeconomic fundamentals going into the COVID-19 pandemic and its perceived ability to bounce back from the crisis.”

BBB+ is a notch away from the minimum score within the “A” territory.

Benjamin Diokno, Bangko Sentral ng Pilipinas governor, said the action is “a big vote of confidence coming from the rating agency on the post-pandemic economic recovery of the Philippines.”

“The Philippines is defying the global trend of rating downgrades and negative rating outlook as an aftermath of the health crisis and the subsequent containment measures of many governments,” Diokno noted.

“Thanks to critical institutional reforms and sound policy management, we are in the advantageous position of having monetary space to carry out further easing, if necessary,” Diokno said.

“While being mindful of our price and financial stability mandates, we are thinking outside the box to enact policies that ultimately help safeguard the lives and livelihoods of our people. Such is our solemn responsibility in this once-in-a-lifetime crisis, and I am confident that our approach will demonstrate the resilience of our country,” he added.

Diokno explained that the Philippines is badly hit as well, with the country’s gross domestic product (GDP) expected to contract this year after posting 84 consecutive quarters of growth.

He noted that what goes well for the Philippines is its sound fundamentals going into the crisis that allow it to implement massive relief response without fear of a debt blowout.

S&P said the affirmation of the Philippines’ credit rating reflects its “expectations that the economy will continue to achieve above-average growth over the medium term, which will drive constructive development outcomes and underpin broader credit metrics.”

The debt watcher forecasts the economy to contract by 0.2 percent this year and then strongly bounce back with a growth of 9.0 percent next year.

S&P recognized favorable macroeconomic fundamentals of the Philippines going into the crisis, including improving per-capita income, low inflation, strong balance sheets of the corporate sector, stable financial system, and declining unemployment rate.

“The Philippine economy is among the fastest growing in the world on a 10-year weighted-average, per capita basis — a reflection of its supportive policy dynamics and improving investment climate. The country has a relatively diversified economy with an increasingly strong track record of high and stable growth,” S&P said.

It projects real GDP per capita growth to average approximately 4.2 percent per year over 2020-2023.

The debt watcher likewise cited the reforms in the fiscal front implemented under the Duterte administration, which helped boost the government’s ability to respond to the crisis.

“The government has enacted effective fiscal policies in recent years, marked by improvements to the quality of expenditures, manageable fiscal deficits, and low levels of general government indebtedness,” it said.

S&P said the country’s external position is a key strength, marked in part by rising foreign exchange reserves and comfortable external debt metrics.

S&P’s latest rating decision on the Philippines came following the move of Fitch Ratings earlier this month to affirm its rating of “BBB” for the Philippines and to adjust the outlook on the said rating from “positive” to “stable.”

Carlos Dominguez, finance secretary, said the affirmation “is an unequivocal recognition by S&P of the resilience of the Philippine economy to regain its high-growth trajectory in the new normal.”

“We are confident that our government’s four-pillar strategy to deal with the pandemic will see us through this global health emergency as we remain focused on saving lives and protecting communities while gradually lifting mobility restrictions to restart the economy and get people back to work,” Dominguez said.

Karl Chua, acting secretary of the National Economic and Development Authority, highlighted the government’s economic recovery program, which entails helping small businesses to bounce back, such as through ample access to credit, supporting workers and their families through targeted wage subsidies, and cash-for-work programs.

“No country has been spared from the economic effects of this global pandemic, but our strong economic fundamentals and inclusive recovery measures will power our return to growth,” Chua said.

“Thanks to our ample buffers and fiscal space, we can jumpstart domestic demand by investing more in healthcare, infrastructure, and the entire food value chain,” Chua added.

THE Bangko Sentral ng Pilipinas (BSP) yesterday said it “sees no apparent and immediate need” to avail of the Short-term Liquidity Line (SLL) provided by the International Monetary Fund (IMF).

Benjamin Diokno, BSP governor, said the country has sound economy and doesn’t have short-term liquidity needs.

“As I said before, structural reforms and sound economic management have helped the Philippines enter the COVID-19 crisis from a position of strength,” Diokno said.

The SLL is a new borrowing facility offered by the IMF to aid its members as part of its response to the coronavirus pandemic.

It is designed to be a liquidity backstop for members with very strong policy frameworks and fundamentals, who face potential, moderate, short-term liquidity needs because of external shocks that generate BOP difficulties.

Diokno said the country has an overall BOP surplus amounting to $7.84 billion as of end-December 2019, the highest in the last seven years.

“This is two times higher than the $3.7 billion surplus projected for this year,” Diokno stressed.

He also pointed out the local currency, the peso, is stable.

“Year-to-date (15 May 2020) the peso has outperformed most of its peers in the region which is least depreciated and second to the Taiwan dollar, which is the only currency that appreciated versus the US dollar,” Diokno said.

Diokno also stressed that the country has a hefty gross international reserves (GIR) at $89 billion as of end-March 2020.

“(This is) equivalent to 5.3 times the short-term debt based on original maturity and 3.8 times based on residual maturity. It is adequate to cover 7.9 months of imports of goods and services and payments of primary income,” Diokno said.

BSP projects that the GIR would be in the neighbourhood of $93 billion by the end of 2020.

The country’s debt-to-gross domestic product (GDP) ratio is also “manageable.”

Diokno said as a percentage of GDP, debt was estimated at below 40 percent as of end-2019.

Diokno stressed that structural reforms and sound economic management over the years have provided the BSP with monetary and fiscal space to safeguard lives and support livelihoods at this critical time.

Since the start of the enhanced community quarantine, BSP has released a “long list of prompt and decisive policy support measures” including the cumulative 125 basis points cut in the policy rate and the 200 basis points reduction in the reserve requirement ratio.

CREDIT rating agency Moody’s Investors Service yesterday maintained its Baa2 rating with stable outlook on the Philippines, even after seeing a contraction of as much as 2 percent in the country’s gross domestic product growth for this year.

Despite the country’s “robust growth potential,” Moody’s said “weak rule of law and control of corruption weighing on institutional capacity” may provide challenges to the rating.

Moody’s rating, two notches below A-rating level, equals the ratings of Fitch and Korea-based NICE Investors Service.

Christian de Guzman, Moody’s senior vice president, said the country’s credit profile “has been characterized in recent years by strong economic performance, a strengthening fiscal position and limited vulnerability to external shocks.”

“Although the global coronavirus outbreak presents near-term challenges to these trends. In particular, stringent containment measures have curtailed domestic activity, while the global downturn weighs on the outlook for remittance inflows and goods exports. Structural credit challenges include low per capita income and modest debt affordability,” de Guzman said.

De Guzman said the global coronavirus outbreak “threatens the Philippines through a number of channels, including trade, supply chain linkages, investment, remittances and tourism, while stringent containment measures will also sharply curtail domestic demand.”

“In addition, the combination of lower revenue resulting from weaker economic growth and higher spending to mitigate its impact will lead to wider government deficits and higher debt,” de Guzman added.

Benjamin Diokno, Bangko Sentral ng Pilipinas governor, said Moody’s opinion “is actually a vote of confidence on the country’s strong macroeconomic fundamentals and the way the Philippine government is managing the coronavirus pandemic.”

“As I said before, the once in a lifetime COVID-19 crisis hit the Philippines from a position of strength. It has ample fiscal and monetary space. While the economy is likely to contract this year, the contraction would be less severe compared to most economies in the world. In fact, barring a second wave of infections, I expect the Philippine economy to have a strong rebound, estimated at 7.8 percent, in 2021,” Diokno said.

Carlos Dominguez, finance secretary, said the opinion validates the resilience of the economy’s most fundamental strengths: a young and productive labor force, a responsible approach to debt management, conservative economic and fiscal policies, and an emphasis on infrastructure and human capital development in the government’s priority programs.

“I also expect that our commitment to fiscal and economic reform, including our comprehensive tax reform program, and our internationally-recognized reputation as a worthy and dependable borrower will keep our credit ratings buoyant,” Dominguez said.

“This vote of confidence in our financial strength is the latest in a string of positive reviews, including one from the highly-reputable The Economist magazine which ranks us as one of the best among emerging economies in terms of financial strength. These reviews demonstrate the international community’s enduring belief in our ability to defeat Covid-19 and bounce back from this pandemic. This confidence will make it easier for us to find the resources and build partnerships that can help resolve this crisis decisively,” Dominguez added.

De Guzman said they would consider upgrading the Philippines’ sovereign rating if there was “a marked convergence between growth of per capita incomes and government revenue generation, and as a result debt affordability, with higher-rated peers.”

“This could materialize over time as the government makes greater progress on its reform agenda, including addressing infrastructure gaps, increasing competitiveness and the ease of doing business, and ensuring sustainable and inclusive growth,” de Guzman said.

Factors that would prompt a downgrade of the Philippines sovereign rating include the emergence of macroeconomic instability that would lead to a deterioration in fiscal and government debt metrics and/or an erosion of the country’s external payments position. The reversal of reforms that have supported recent gains in economic and fiscal strength would also likely lead to a downgrade.

THE lofty goals of getting an A-rating for the country by 2022 and achieving upper middle income status this year can wait, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

Instead, Diokno said “the political leadership and the economic managers should focus on saving lives, saving livelihoods and saving jobs.”

His statement came amid uncertainties on whether extending or lifting the enhanced community quarantine (ECQ), set by the government almost two months ago to combat the effects of the coronavirus pandemic.

The ECQ has resulted in a contraction of the country’s economy as measured by the gross domestic product (GDP), a first in more than 20 years.

Diokno said he leaves to the Inter-Agency Task Force and the President the decision of either lifting or modifying the ECQ guidelines.

“As individuals, and as a people, we should prepare for a ‘New Economy’ — not a ‘New Normal’, which is an oxymoron. The New Economy should be better, safer, and more technologically ready,” Diokno said.

Emergency employment

Diokno said as the government moves into the next phase of the road to the New Economy, “it should focus on a quick disbursing, employment creating program.”

He said under the Bayanihan Act, Congress authorizes the President to rearrange the prioritization in the 2020 budget.

“This led to the massive cash grants to some 18 million families. Strictly speaking, there was no new appropriations. Hence, the impact of the fiscal stimulus is limited,” Diokno said.

“Of course, the change in the composition of the budget, say from slow-moving capital projects or budgetary assistance to government corporations to quick-disbursing cash grants makes some difference,” he added.

The government, according to Diokno, needs a supplemental budget, the size of which can be decided upon by the President with the recommendation of his economic managers.

“I estimate that a 1-percent increase in the deficit would amount to P200 billion of ‘new’ spending; a 2 percent increase would amount to P400 billion. The Executive Department needs new spending authority. It needs a supplemental budget,” Diokno said.

He said some of the “new” money can be used for emergency employment aimed at creating 2 million new jobs.

“The 2 million jobs will be allocated to 42,045 barangays, to be distributed based on the number of inhabitants per barangay and the level of unemployment per province or city. NEDA (National Economic and Development Authority) can provide the data,” he said.

The nature of the job will be determined by the barangay chief. The workers may do a green project (cleaning of rivers, tree planting, etc.), public works project (road maintenance, fortifying sea walls, social housing) or health project (contact tracing, maintenance work in COVID-19 facilities, etc.).

“The workers will be paid 10 percent lower than the minimum wage rate in the region, will work for 8 hours, 5 days a week, for 7 months — June to December 2020,” Diokno said.

He stressed the emergency employment is “quick-disbursing and will have high multiplier effect.”

“It is pro-poor and egalitarian. It gives the ordinary worker a greater sense of self respect since he works for the food on his table. By helping himself, the worker helps his fellowmen and society,” Diokno said.

Road to A-rating

The country’s credit rating is currently near the A-rating level.

Securing an A credit rating translates to lower borrowing costs and favorable investment environment which support economic growth.

“This pandemic hit the Philippines at a time when we are on a roll. The economy, the macroeconomic fundamentals are sound but unfortunately, we just like the rest of the world are suffering so the road to A might take a backseat at the moment,” Diokno said.

Japan-based Rating and Investments Information Inc. (R&I) upgraded the country’s rating from BBB to BBB+ earlier this year.

R&I joined Standard & Poor’s (S&P) Global and Japan Credit Rating Agency (JCR) in assigning to the Philippines a “BBB+” rating, just a notch away from the sterling “A” scale and a step above Fitch’s.

Fitch last week has affirmed the Philippines’ rating at BBB but changed the outlook to stable from positive as the world continues to grapple with the COVID-19 pandemic.

Fitch’s BBB rating with a stable outlook equals that of Moody’s Investors Service and Korea-based NICE Investors Service.

In its report on the Philippines released on Thursday, Fitch said the revision of the rating outlook from “positive” to “stable” took into account the adverse economic effects of COVID-19 and the ECQ.

Fitch also said the affirmation of the BBB rating “reflects the Philippines’ fiscal and external buffers, including its low debt-to-GDP ratio compared to peer medians and net external creditor position, as well as its still-strong medium term growth prospects.”

A stable outlook indicates that the Philippines’ rating will likely be maintained over the next 18-24 months.

“Our concern really right now is to help our people rather than maybe pursuing our road to A. Although we are still confident that we may achieve A rating by 2022,” Diokno said.

“The BSP and the national government will remain focused on pursuing appropriate policies and the necessary structural reforms to put the economy back on its high growth trajectory and create more jobs to improve the lives of our people,” he added.

Diokno said structural reforms and sound economic management over the years have provided the BSP with monetary and fiscal space to safeguard lives and support livelihoods at this critical time.

Since the start of the ECQ, BSP has released a “long list of prompt and decisive policy support measures” including the cumulative 125 basis points cut in the policy rate and the 200 basis points reduction in the reserve requirement ratio.