Strong fundamentals can address Covid-19 challenge

March 27, 2020

The government’s budget deficit and spending would  exceed the program this year because of the need to address the impact of the coronavirus disease 2019, but Finance Sec. Carlos Dominguez said domestic fundamentals remain strong and can address this challenge.

Dominguez said the enhanced community quarantine and the ban against the entry of foreigners for the meantime would have “very serious effects” on the livelihood of the people.

He said this is why President 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 P27.1 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 has also agreed to purchaseP300 billion worth of government securities from the Bureau of the Treasury  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’ reserve requirement ratio  by 200 basis points effective March 30, 2020, which is seen to ensure additional P200-billion liquidity into the system.

Dominguez said they are also in talks with lenders for a $1-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.

The DoF chief said Finance officials 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 estimates that total loss from the impact of the pandemic on the economy’s supply and demand side amounts to about P428.7 billion to P1.3555 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, the Finance chief said.

Revenue target for this year is P3.54 trillion, equivalent to 16.7 percent of domestic output while expenditures was set to be at P4.21 trillion.

Domestic output this year was set between a range of 6.5 percent and seven percent.

Dominguez  said the department  continues to push for the achievement of an A-level credit rating despite the projected slower domestic output this year. 

“(But) our main concern now, as I said, is no longer the credit rating agencies’ opinion of us but the survival of our people, the support to those whose livelihood are affected, and, of course, supporting our general economy to be ready to the inevitable return to normalcy,” he said.

In a video conference with journalists Wednesday, he  said they are currently in talks with multilateral agencies like the World Bank, Asian Development Bank, and the Asian Infrastructure Investment Bank for up to $2-billion funding support.

“We want to do it early because all the countries in the world are trying to do the same thing. I think we are a step ahead of the others at this point and we are well in the way of negotiations,” he said.

Dominguez said Finance authorities  are firm on having the budget needed to support the poor and lift the economy from the impact of Covid-19.

“We are definitely in that mode right now. We have a pretty good capacity and we will do what it takes,” he said, but declined to give figures on how much the programed targets would be surpassed since developments remain fluid.

He added foregone revenues are estimated to be about P286 billion if collections are flat, while these are seen to reach about P318.9 billion if revenues fall one percent.