PHL Will Now Need Stimulus Packages
There are good reasons to believe that our economy will continue to grow despite the short-term impact of Covid- 19 on sectors such as travel, tourism, hotels, and restaurants. Some business establishments, however, will require government support to get through this challenging period.
One government body that will play a crucial role during this time is the Bangko Sentral ng Pilipinas. I welcome Governor Benjamin Diokno’s assurance that the BSP is ready to become more aggressive this year to stimulate economic growth amid the persisting threat of Covid-19 that has forced the government to place Metro Manila under community quarantine until April 14, 2020.
In his latest statement, Diokno said “the Monetary Board is ready to deploy any or all of its policy tools, as appropriate, to address all challenges to our own financial markets and growth prospects.”
The Monetary Board also approved temporary and rediscounting relief measures for all banks. I just hope this will be extended to companies and enterprises that are affected by the temporary disruption. Companies would need leeway from banks in terms of lower interest rates on loans and flexible mortgage payments.
While Covid-19 is a health issue, its implication could be deeply felt by many businesses. This is why I believe the BSP and the government should prepare stimulus packages that will help limit the impact of the disease on commercial establishments that might not be able to operate for a month while the community quarantine is in effect.
Such packages will help lessen the impact on businesses that need to pay the salaries of their employees, as well as the rent, mortgages, and other bank loans while they are on limited operations. The BSP and the Department of Finance should tap their monetary and fiscal arsenals, and decisively support businesses that are in need to prevent them from going under and laying off workers.
At the same time, I commend Finance Secretary Carlos Dominguez III for ordering the two-state pension funds—Government Service Insurance System and Social Security System—to support the stock market at the time of heavy volatilities.
Governor Diokno also deserves our support. His decisiveness to respond to the situation sends comfort to businesses that rely on bank loans to sustain them in this challenging time. We expect the central bank under his leadership to remain a source of confidence among local companies and foreign investors in the Philippines.
In fact, the Monetary Board chaired by Diokno started with a 25-basis-point reduction in overnight borrowing rate this year.
Diokno hinted more rate cuts were possible in the next few months if the economic impact of Covid-19 would be worse than expected.
This is actually manageable as the inflation rate eased to 2.6 percent in February and 2.75 percent in the first two months of 2020, below the midpoint of the target range of 2 percent to 4 percent. The DOF also expects the inflation rate to further ease in the coming months because of the declining global oil prices.
It is comforting to know that we have a BSP governor who knows what he is doing as he guides the economy through this rough time. He was quoted as saying that a 6-percent economic growth this year is still possible despite the impact of the coronavirus.
The National Economic and Development Authority estimates the Covid-19 could cut as much as 1 percentage point from the gross domestic product growth this year. From the original target growth of 6.5 percent to 7.5 percent, this year’s growth could settle at 5.5 percent to 6.5 percent if the fallout from the Covid-19 spreads across the tourism and trade sectors until June, resulting in a reduction of 1.42 million in international visitor arrivals and job losses of 30,000 to 60,000.
Governor Diokno said the strong local banking sector would help the economy stay afloat, as Philippine banks have adequate capital to withstand potential losses linked to Covid-19. He said the banks’ average capital adequacy ratio (CAR) is much higher than the BSP-prescribed 10 percent and Bank of International Settlements’ prescribed 8 percent.
So far, there are signs that the economy continues to do better than the rest of the region. Philippine exports, in fact, grew 9.7 percent to $5.79 billion in January 2020 from $5.28 billion in the same month last year, on the back of a 15.8-percent rise in shipments of electronic products.
Of course, these figures have only partially reflected the impact of Covid-19, which became more pronounced in February and March.
The Asian Development Bank said the magnitude of the economic losses in the region from Covid-19 would depend on how the outbreak would evolve in the coming months. S&P Global Ratings said the Philippines was among the Asian countries that could be less affected by the virus because of its minimal exposure to China and the global supply chains.
So far, the impact is limited to travel, tourism, hospitality and restaurant sectors. If this goes far beyond these sectors, we are confident that the BSP will employ its monetary arsenals to support the economy through lower interest rates. Such assurance will comfort our businessmen and help stop the hemorrhaging at the Philippine Stock Exchange, which usually reacts to the slightest negative news.
While we don’t know yet what the full impact of this virus scare on our growth targets, we know that we have good decision-makers at the BSP and the DOF who are willing to take actions to support our businesses and our economy in general.