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.
