The Bangko Sentral ng Pilipinas (BSP) and the Department of Finance (DOF) are in talks on how the government can spend the $2.78 billion (P141.24 billion) special drawing rights (SDR) allocation from the International Monetary Fund (IMF).
“The BSP is working with the DOF and the Bureau of the Treasury on the implementation arrangements,” said BSP Governor Benjamin E. Diokno in an email.
One of the arrangements being considered is to utilize the SDRs to provide policy space in fighting the COVID-19 pandemic, including budget support. As of end-August, the Philippines has a budget deficit of P121 billion, three times more than same period in 2020 of P40 billion.
Diokno said that they will “continue to discuss the further use of the additional SDRs, which if utilized, will be done in a transparent and accountable manner.”
This will be the first time that BSP will tap the SDR. In the past, it said the country’s SDR allocations “have not been used or converted for a specific purpose.” The SDR allocation is however not an IMF loan but an interest-bearing reserve asset and described as “unconditional liquidity” from the IMF.
Besides policy support, the government can convert or sell its SDR allocation. It may exchange it to an equivalent amount of freely usable currencies which can be used to address a balance of payments shortfall or foreign currency reserve requirement, said the BSP.
The $2.78 billion was credited to the country’s SDR account last August 23, raising the SDR reserves to $3.99 billion. The amount was the Philippines’ share of the $650 billion additional SDRs issued by the IMF as global liquidity assistance in August.
Before the fresh SDR allocation, the GIR has an existing SDR component of $1.22 billion which was first distributed to the Philippines in 2009 as funding support during the Global Financial Crisis.
The latest additional SDRs “have bolstered the GIR (and it) further strengthened the Philippines’ resilience against external shocks,” said Diokno.
The IMF has advised governments and central banks to utilize the fresh SDR allocation instead of tapping new policy or program loans for financing requirements or for pandemic response. SDRs are IMF reserve assets used by IMF-member countries as foreign exchange reserves.
As per IMF guidelines, member countries such as the Philippines can utilize the SDRs for policy space. The central bank monitors and manages the SDR account.
When used as policy space, the government has to consider its COVID-19 response, level of reserves, fiscal and monetary policy headroom, domestic and external debt sustainability, financial stability, and financing constraints.
An unutilized SDR allocation is “cost-free” but if a member-country will use its SDR, it will “pay more charges than they will receive interest on their holdings,” according to the BSP.