Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is not a fan of reissuing a third version of the Bayanihan law as it will not help improve the country’s credit standing which had a recent outlook downgrade to “negative” due in part to a slow vaccine rollout.
Diokno is instead renewing his calls for a more vigorous COVID-19 vaccine deployment rather than harping on whether or not there is a need for Bayanihan 3.
Diokno, who was budget secretary under three Philippine presidents including President Duterte, said he is not in favor of Bayanihan 3 legislation – which will be decided by Executive Department and Congress – because it will have zero impact on the Philippine sovereign ratings.
“I disagree (that) legislating Bayanihan 3 will help us to improve our ratings prospects after Fitch downgraded the country’s outlook to ‘negative’ from ‘stable’. Nevertheless it should be pointed out that in a sea of ratings downgrade globally last year and this year, Fitch has affirmed the Philippines’ investment grade,” said Diokno.
The BSP chief said COVID-19 drag on the local GDP is only transitory, that contraction in 2020 was caused by the strict lockdown measures but as the government accelerates the vaccination program and implements recovery measures, he expects more green shoots of recovery in the coming months.
“The major ratings agencies— S&P and Moody’s— have affirmed their ratings and outlook, while the Japan rating agency has upgraded its ratings. That should be seen in a positive light,” Diokno pointed out.
The Philippines has an investment-grade credit standing with a moslty “stable” outlook. However on July 12, debt watcher Fitch Ratings while affirming its “BBB” credit score for the country, downgraded the outlook from “stable” to “negative” citing uncertain growth prospects due to the health crisis. A negative outlook means there is a high probability that Fitch could downgrade the country’s sovereign rating.
So far, Fitch is the only credit rating agency that adjusted the outlook on Philippines. Last May, S&P Global maintained its “BBB+” rating with a “stable” outlook. Moody’s has also kept its “Baa2” rating to the Philippines, with a “stable” outlook.
Diokno said instead of focusing on Bayanihan 3 legislation, the focus should be on the acceleration of the vaccine rollout, implementation of structural reforms, and more spending on infrastructure program to attract foreign direct investments.
“I’m positive that the vaccination program in on the right track,” he said, noting that there is a steady supply of vaccines from multiple sources when other countries only have two vaccine sources. “(The Philippines) has shown its capacity to administer the program effectively and massively (and) there’s a strong private sector support for the vaccination program,” said Diokno. He also noted that there “appears to be no vaccination hesitancy on the part of Filipinos.”
“The success of the vaccination program is the key to a strong and sustained economic recovery. With its success, future surges in virus incidence can be avoided. In turn, there would no need for lockdown measures which have proven to costly economically here and abroad,” said Diokno.
As for Bayanihan 3, the BSP chief said its rationale “fades with the submission of next year’s President’s Budget” in a month.
“Additionally, as a result of the Supreme Court ruling, more fiscal resources will flow to LGUs starting January 2022, less than half a year, from now,” adding that “LGUs may be in a better position to address the needs of their local constituents who are affected by the pandemic.”
“If local officials don’t want to overburden their fiscal position as a result of high incidence of COVID-19 in their community, then they should exert more effort to contain the virus through strict enforcement of health protocol and more aggressive contact tracing,” he stressed. “This is what we call ‘incentive compatible.’ Moving forward, I see the likelihood of stricter local lockdowns, if at all, rather than regional lockdowns.”
Bayanihan 3’s legislation has hurdled Congress back in June, which assigned it a P401 billion budget.