The national government will repay the full amount of its cash advances to the Bangko Sentral ng Pilipinas (BSP) ahead of the January maturity date, the Department of Finance (DOF) said.
In a letter addressed to BSP Governor Benjamin E. Diokno, Finance Secretary Carlos G. Dominguez III said that they will settle the P540-billion provisional advances to the central bank this week, or on Dec. 10.
Dominguez added that the DOF also downsized its request for liquidity support to P300 billion next year amid an improved economic outlook.
Dominguez said the lower amount to be requested by the government as provisional advance in the second week of January 2022 signals to the market “that we are on track with the unwinding of liquidity support on firmer evidence of return to economic strength.”
The head of President Duterte’s economic team revealed the plan as he lauded the “strong monetary and fiscal coordination (between the BSP and the DOF) in ensuring that the Philippines remains resilient in this crisis.”
The extension of provisional advances is a temporary arrangement with the BSP that provides the government access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged.
Under Section 89 of The New Central Bank Act (Republic Act No. 7653), the BSP may make direct provisional advances with or without interest to the government to finance expenditures authorized in its annual appropriation.
Initially, the advances were in the form of a zero-interest repurchase agreement (repo) transaction in the amount of P300 billion, granted in March 2020 and fully repaid in September 2020.
The provisional advances were then converted to a zero-interest three-month loan in the amount of P540 billion, granted in October 2020 and fully repaid in December 2020. These were again accessed in January 2021, extended in April 2021, and fully repaid in July 2021.
The latest access of provisional advances was in July 2021, which was due in October 2021 and extended to January 2022, but will be fully repaid in December 2021.
National Treasurer Rosalia de Leon had recommended the early repayment of the P540-billion provisional advances, which will be settled on Dec. 10, on the basis of favorable cash position brought about by promising revenue collections.
“We have seen economic recovery already begin to take root as more businesses embark on a safe reopening with the successful rollout of the government’s mass vaccination program,” Dominguez said in his letter to Diokno dated Dec. 1.
“The extension of a new P300-billion provisional advances will ensure sufficient resources for the government to safeguard this promising but still fragile recovery,” he added.