Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on Monday said that with the obvious signs of a recovering economy, he is a lot more confident now that the most difficult period of the public health crisis has come and gone.
“The worst of the pandemic is behind us,” Diokno said in a forum. But, it is not over yet. “We are at a turning point from the deep zone brought about by the COVID-19 crisis. The turning of the wheel, of course, is a gradual process as we are not out of the woods yet. The pandemic has hit us hard.”
“But now, we are seeing early signs of recovery,” he said. “We expect our recovery process to continue as more industries re-open following the relaxation of the quarantine measures.”
Diokno, ex-budget secretary and former UP economics professor, is more confident now that the economy is on the mend as industries and households have adjusted – albeit slowly – to the “new ways of doing things”.
He said that six months into the pandemic, Filipinos are more capable of dealing with the health crisis and learning still how to “live with the virus.”
“We are learning how to strike the delicate balance between saving lives and protecting livelihoods and businesses,” he said during the virtual FINEX Conference Monday.
Diokno cited improving manufacturing purchasing managers index which from 27.5 in April is now 50.2 in September, plus the value and volume of production for the manufacturing sector is also better from March to July.
He also noted some other improvements such as in fund transfers, investments, export/import trade and external accounts sector.
“Overseas Filipino remittances have rebounded with a year-on-year growth of 7.7 percent in June and 7.8 percent in July, after the declines in the March, April and May. Similarly encouraging is the swing of foreign direct investments (FDI) to a growth of 39.1 percent in May and 7.1 percent in June,” he said.
The BSP has a grim projection of a five percent contraction to remittances for this year because of the pandemic which also forced thousands of Filipino US dollar earners to come home. Both remittances and FDIs are however expected to rebound and improve in 2021. For remittances, the BSP expects a turnaround of four percent growth and for FDI to increase to $6.5 billion from the estimated $4.1 billion in 2020.
So far, to help along in the economic recovery, the BSP’s liquidity-enhancing actions now translate to
P1.5 trillion of fresh liquidity into the financial system.
“BSP has injected hefty liquidity into the financial system to soften the impact of the COVID-19 crisis on the economy,” said Diokno. “This liquidity injection will be aided in part by the BSP’s newest liquidity management tool of the BSP—securities issuance. With it, we will be able to further improve our ability to manage liquidity in the system, consistent with our price stability mandate,” he added.
For this year, the government expects gross domestic product to “swing from a range of negative seven to negative nine percent this year” and for 2021 and 2022, to recover back to a range of 6.5 to 7.5 percent, said Diokno.
The economy will get support from a manageable inflation environment that is continued to be seen to stick within the two-four percent target until 2022. During the October 1 Monetary Board policy meeting where the BSP decided to keep rates on hold, the inflation forecasts for 2020 until 2022 were lowered to 2.3 percent for 2020, 2.8 percent for 2021, and three percent for 2022.
“We are committed to using our entire arsenal of instruments, in line with the provisions of our (BSP) Charter, in a timely manner to address the macroeconomic impact of the COVID-19 pandemic,” vowed Diokno. He said the BSP is currently working with banks on “laying the enabling framework that will encourage private sector participation in the attainment of a balanced and sustainable growth”.