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UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the decision from the government of Philippines to increase monetary stimulus in order to help the domestic economy to recover from the COVID-19 impact.

Key Quotes

“Philippines President Rodrigo Duterte has signed the Bayanihan to Recover as One Act (Bayanihan 2) into law last Friday (11 Sep). The newly-signed law provides for a PHP165.5bn fund to finance the country’s response and recovery interventions to mitigate the impact of the COVID-19 pandemic (vs. PHP275bn under Bayanihan 1).”

“Bayanihan 2 authorises Bangko Sentral ng Pilipinas (BSP), under the New Central Bank Act [or Republic Act (RA) No. 7653)], to make additional direct provisional advances with or without interest to the national government (NG) to finance expenditures that will address and respond to the COVID-19 situation. It allows the central bank to extend additional credit worth as much as 10% of the government’s average revenue in the last three years, which is equivalent to about PHP282bn. This brings the BSP’s lending cap to the NG to 30% or about PHP820bn, from the previous 20% or PHP540bn.”

“The signing of Bayanihan 2 law and proposal of higher borrowing cap by the NG are seen as timely actions to achieve sustainable economic recovery from the health crisis. However, lingering uncertainties surrounding COVID-19 infections still prompt us to have a cautious view of a modest economic recovery ahead. This new law is not expected to have material impact on inflation and the currency (Peso, PHP) in the near term.”