MANILA – Finance Secretary Carlos Dominguez III has informed the Monetary Board (MB) that the national government (NG) will repay the full amount of its outstanding PHP540-billion provisional advances to the Bangko Sentral ng Pilipinas (BSP) this week, ahead of the January 12, 2022 maturity date, aside from downsizing its request for liquidity support to PHP300 billion next year amid an improved economic outlook.
Dominguez, in a letter addressed to BSP Governor Benjamin Diokno, said the lower amount of PHP300 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.”
As head of President Rodrigo Duterte’s economic team, Dominguez revealed this NG plan as he lauded the “strong monetary and fiscal coordination between the BSP and the Department of Finance in ensuring that the Philippines remain resilient in this crisis”.
The extension of provisional advances is a temporary arrangement between the BSP and the NG 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 NG 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 advances were in the form of a zero-interest repurchase agreement (repo) transaction in the amount of PHP300 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 PHP540 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 PHP540-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 PHP300-billion provisional advances will ensure sufficient resources for the government to safeguard this promising but still fragile recovery,” he added.
The new 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 PHP300-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.
Provisional advances shall not, in their aggregate, exceed 20 percent of the average annual income of the borrower for the last three preceding fiscal years, the law states.
De Leon said the NG has accessed the facility in four cycles already at volumes that are consistently below the maximum loanable amount of PHP564 billion in 2020 and PHP589 billion in 2021. (PR)