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Why the Philippine economy is poised for a strong recovery
* Unlike many countries, the Philippines has ample monetary and fiscal space to draw on to fuel recovery, as well as a young, well-educated and mostly English-speaking population
Six months into the most consequential crisis in living memory, the world is coming to grips with what recovery may look like and the scale of effort needed to achieve it.
As governor of the Philippine central bank (Bangko Sentral ng Pilipinas, or BSP), I must consider every day the grave economic challenges facing my country, and craft monetary and financial sector policies to preserve stability and stimulate growth. This pandemic has reminded policymakers of our deepest responsibility – to safeguard lives and livelihoods.
Unlike many countries, the Philippines has ample monetary and fiscal space to draw on to fuel recovery. After over two decades of structural reforms and sound economic management, we have rising employment and incomes, 84 consecutive quarters of growth, improved debt ratios and increased foreign exchange reserves.
We have taken blows, such as a drop in gross domestic growth
but the Philippines is poised to recover quickly as our public health efforts bear fruit.
The central bank’s primary responsibilities are controlling inflation and maintaining financial stability. However, under my watch, it has played a more active role in poverty reduction and sharpened its focus on humanitarian outcomes.
For months, we prioritized necessities – enabling businesses to stay open, wages to be paid, and families to keep food on the table. To free up liquidity to keep economic activity churning, we cut interest rates by 175 basis points and slashed regulatory reserve requirements by 200 bps for big banks and 100 bps for small ones.
Mindful of the important economic and social role that micro, small, and medium-sized (MSMEs) enterprises play – employing 63 per cent of Filipinos – we allowed banks to count loans to these enterprises against reserves. This resulted in average daily loans to MSMEs increasing by 750 per cent between April and July, a big relief for small Filipino businesses.
In directing banks to implement grace periods for debt repayments and waive fees on electronic fund transactions, the BSP’s intent is clear – help people through the crisis with their health and finances intact.
To support the government’s massive economic recovery measures, the BSP advanced 300 billion pesos (US$6.1 billion) to the national government through a repurchase agreement. In addition, it bought government securities in the secondary market.
In all, the central bank injected 1.2 trillion pesos, or 6.1 per cent of GDP through to July this year. Still, our monetary tools are far from exhausted, with our key rate at 2.25 per cent and inflation forecasts within our target range of 2-4 per cent.
The government’s relief programmes, worth hundreds of billions of pesos, support health workers and other frontline workers, repatriated Filipino workers, and assisted those who had temporarily lost their livelihoods because of the lockdowns.
Metro Manila Subway which is expected to start operation by the year 2022. Photo: philSTAR
We are considering reforms necessary for sustained recovery, such as corporate income tax reductions and removal of barriers to foreign investment. The BSP is pushing for laws to further improve financial regulation and help banks recover.
We also look forward to a “new economy”
New Economy that is stronger and more technologically savvy. My personal target is for 50 per cent of all financial transactions in the Philippines to be done electronically and 70 per cent of Filipino adults to have bank accounts by 2023. As the virus accelerates the need for digital banking, the goals may be achieved earlier.
Digitization is one of the fastest ways to increase access to financial services, particularly in remote areas with no bank branches. It enables quicker capital turnaround, accelerating income growth.
Apart from structural and technological reforms, talent drives economies. The future is bright for Filipinos. Our median age is 24 years, most of us speak English, and a rising share is college-educated. I foresee Filipinos in greater demand worldwide, including in hi-tech markets such as Hong Kong and Singapore.
While the economy is not out of the woods yet, the Philippines is poised for a strong recovery. I am confident, and not only because of our resilience as a people, which we displayed in the Asian and global financial crises. This challenge is far greater, but our institutions and economic fundamentals are stronger than ever. read more at South China Morning Post
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Dr Benjamin E. Diokno is governor of the Philippine central bank (Bangko Sentral ng Pilipinas)
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