With CREATE, FIST laws
The Bangko Sentral ng Pilipinas (BSP) expects the economy to post positive growth in the second quarter due to base effects, but whether or not this will be sustained for the rest of the year will depend on the implementation of recently approved laws, such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and the Financial Institutions Strategic Transfer (FIST) Act.
BSP Deputy Governor Francisco G. Dakila Jr. of the monetary and economics sector, said the growth trajectory will turn positive beginning in the second quarter of the year, but to fully support a recovery that is sustainable, it will have to be supported by the implementation of key pieces of legislation including the CREATE and FIST laws – “which will then impact on growth starting in the second half of the year and well into 2022”. The stronger recovery in global economic activity will also contribute to this economic recovery.
As for inflation outlook, with the Monetary Board on Wednesday revising the forecasts to 3.9 percent in 2021 and three percent in 2022 versus its earlier (March 25) estimates of 4.2 percent and 2.8 percent, respectively, Dakila said these forecasts assume economic lockdowns are over.
“So this baseline forecast in the inflation that we released (on May 12) is consistent with the gradual easing of quarantine measures in 2021 and the assumption of complete lift off in 2022 following the mass employment of vaccines,” he said during the press briefing following the Monetary Board decision to keep the interest rates at two percent.
The inter-agency Development Budget Coordination Committee (DBCC) will meet on May 18 to revise the current growth target of 6.5 percent to 7.5 percent for 2021, although BSP Governor Benjamin E. Diokno has said last month that they are looking at a more conservative six percent to seven percent GDP growth for the year.
Dakila, who will attend the DBCC meeting, said they will reassess the projections for 2021 taking into account the latest first quarter GDP figure of -4.2 percent, as well as the potential impact of the two-month stricter quarantine measures in Metro Manila and surrounding provinces on the level of economic activity.
The CREATE bill was signed into law last March 26, it will reduce the corporate income tax from 30 percent to 20 percent and rationalize the fiscal incentives system as performance-based, transparent and time-bound. Diokno said earlier that this law will be biggest stimulus package for businesses, especially for micro, small and medium enterprises (MSMEs) which are the most severely hit by the pandemic.
The FIST law took effect a month earlier, on February 18. It allowed banks to easily dispose of their idle assets via asset management companies to free up bank liquidity and to boost lending to critical sectors needed to reenergize the economy in recession. Diokno estimates that the law can help slash banks’ non-performing loans ratio – currently at 4.21 percent -- by 0.63 to 0.71 percentage points.
Aside from the FIST and CREATE, the BSP has a lot more on its legislative agenda it is strongly pushing for, such as: the full lifting of the bank deposits secrecy laws; the financial consumer protection bill; the creation of a credit risk database for MSMEs; the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or the GUIDE bill; and the amendments to the Agri-Agra law.
In a statement late Wednesday, Diokno again pushed for the approval of the proposed Agri-Agra law amendments which is BSP’s priority measure for the 18th Congress.
Diokno said BSP’s legislative agenda “will help usher the Philippines’ next stage of economic development.” Proposed changes to the Agri-Agra law is “aimed to principally tackle the persistent challenges in agriculture financing that emanate from both the borrowers’ side and the banks’ and lending institutions’ side.”
Monetary Board member Bruce J. Tolentino, in addressing the Senate Committee on Agriculture, Food, and Agrarian Reform on Wednesday, stressed the agricultural sector’s “significant role in promoting inclusive and broad-based economic growth.”
“The BSP fully supports the objectives driving the various Agri-Agra bills which seek to strengthen rural development through holistic approaches that consider the broad context for agricultural financing and rural community development,” he told senators.