Gov't to repay P540-B loan to BSP, to request lower liquidity support in 2022

The Philippine government is set to repay in full this week the P540 billion it borrowed from the Bangko Sentral ng Pilipinas (BSP), ahead of the January 12, 2022 maturity date, the Department of Finance (DOF) said Wednesday.

In a statement, the DOF said Finance Secretary Carlos Dominguez III has informed the Monetary Board (MB) that the national government will repay the full amount of its outstanding billion provisional advances to the central bank.

The Finance chief also informed the MB that it will downsize its request for another liquidity support to P300 billion next year amid an improved economic outlook.

This year, BSP has already loaned out P540 billion to the Philippine government, mainly to be used for budgetary support as the country faces a fiscal deficit due to the pandemic.

The central bank also approved two loans worth P540 billion each to the national government in December 2020 and another in October last year —all of which are already fully repaid.

Dominguez, in a letter addressed to BSP Governor Benjamin Diokno, said the lower amount of P300 billion to be requested by the government as provisional advance in the second week of January 2022 signals to the market “that we are on track with the unwinding of liquidity support on firmer evidence of return to economic strength.”

The DOF noted that the extension of provisional advances is a temporary arrangement between the BSP and the national government to provide the government access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale of the borrowing need and the unpredictability of financial markets amid the pandemic.

Under Section 89 of The New Central Bank Act (Republic Act No. 7653), the BSP may make direct provisional advances with or without interest to the national government to finance expenditures authorized in its annual appropriation, on condition that said advances shall be repaid before the end of three months, extendible by another three months as the MB may allow following the date the NG received such provisional advances.

Initially, the Finance department said the advances were in the form of a zero-interest repurchase agreement (repo) transaction in the amount of P300 billion, granted in March 2020 and fully repaid in September 2020.

The provisional advances were then converted to a zero-interest three-month loan in the amount of P540 billion, granted in October 2020 and fully repaid in December 2020.

These were again accessed in January 2021, extended in April 2021, and fully repaid in July 2021.

The latest access of provisional advances was in July 2021, which was due in October 2021 and extended to January 2022, but will be fully repaid this December 2021.

National Treasurer Rosalia de Leon had recommended the early repayment of the P540-billion provisional advances, which will be settled on December 10, on the basis of favorable cash position brought about by promising revenue collections and overwhelming support in the recent Retail Treasury Bond (RTB) offering.

“We have seen economic recovery already begin to take root as more businesses embark on a safe reopening with the successful rollout of the government’s mass vaccination program,” Dominguez said in his letter to Diokno dated December 1.

“The extension of a new P300-billion provisional advances will ensure sufficient resources for the government to safeguard this promising but still fragile recovery,” he added.

The new P300-billion provisional advances to be requested in January will have similar terms as the earlier loan — zero interest, and three-month maturity with another three-month extension, as recommended by De Leon.

De Leon also recommended that the P300-billion advances be fully repaid before the end of June 2022 to fully unwind the liquidity support before the start of the next administration.

Funds granted under this short-term lending arrangement are not used for direct financing of government operations but serve as a liquidity gap measure that ensures the government will be able to undertake large spending in advance of anticipated revenue collections or regular borrowing proceeds, according to the DOF.

Provisional advances shall not, in their aggregate, exceed 20% of the average annual income of the borrower for the last three preceding fiscal years, the law states.

De Leon said the national government has accessed the facility in four cycles already at volumes that are consistently below the maximum loanable amount of P564 billion in 2020 and P589 billion in 2021. —KG, GMA News