Outgoing Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the emerging data on the economic impact of the digitalization shift from cash-heavy to cash-lite is promising.
On Monday, June 20, Diokno said digitalization continues to unlock benefits for the economy, especially small businesses which have taken into the digital migration swiftly due to the pandemic.
“The assessment of actual impact of digitalization to the Philippine economy is currently being finalized and will soon be released by the BSP,” he said during his regular press briefing “GBED Talks” one of his last as BSP chief before assuming his new role as the Marcos government’s finance secretary.
Meantime, Diokno said the level of digitalization of retail payments has risen exponentially in a span of 12 months and “this bring us closer to achieving our aim to transform at least half of retail payments into digital form by 2023.”
Diokno said the bulk of retail payments continue to be payments to merchants for purchases of goods and services, and over 99 percent of businesses are micro, small and medium enterprises (MSMEs).
“Imagine if these MSMEs reap the benefits of digitalization such as cost-savings, expanded market, and operational efficiency and resiliency,” he said. “Collectively that means a huge effect on our economy in terms of growth and productivity. Moreover MSMEs access to digital payments could be the first step to digital financial inclusion. So, the MSMEs contribution to growth, productivity and financial inclusion could make them an integral part of the country’s overall economic growth,” he added.
Diokno reiterated that digital payments has been a catalyst for accelerating financial inclusion and spurring economic growth.
He cited a recent study across 70 economies where the adoption of cashless payments has added $245 billion to the real GDP from 2015 until 2019.
“Increased consumer consumption and job generation contributed to the overall productivity and economic growth,” said Diokno.
The BSP has studied other economies in how they transformed into not just a cash-lite but cashless society.
Research findings show that shifting towards a cash-lite system benefited business and economic activities as it would unlock economic benefits such as cost savings and a faster and more efficient payment systems.
Diokno reiterated on Monday that he expects a return to pre-pandemic robust growth in terms of output by the second quarter this year. He has always said that the GDP, after reporting 8.3 percent growth in the first quarter, will extend its positive performance in the second quarter. “We estimate that in terms of output, we will be back to where we were before by the second quarter this year, much earlier than originally forecasted,” he said.
The BSP said stagflation where there is high inflation and unemployment but slow growth, is not “an immediate risk” to the domestic economy, and that the GDP output is fundamentally strong to sustain its growth path.
“The steady upturn in credit activity, ample domestic liquidity, and favorable market sentiment should also help boost economic activity,” said BSP last week. It cited the country’s steady foreign direct investment inflows and the latest consumer confidence survey which improved in the first quarter.
The BSP said domestic labor conditions are improving with employment now approaching pre-pandemic levels following the easing of Covid-related mobility restrictions and sustained vaccination efforts. From a peak of 17.6 percent during the height of the pandemic in April 2020, the unemployment rate has fallen to 5.7 percent by April of this year.
Inflation, meantime, continue to increase. In May, inflation rate hit 5.4 percent from 4.9 percent in April. The BSP as of its May 19 monetary policy meeting has set 4.6 percent as inflation forecast for 2022 and 3.9 percent for 2023. The government target is two percent to four percent.
“While domestic inflation is seen to remain elevated in the near term, as a result of supply-side factors linked to volatile global commodity prices, inflation is expected to revert to the government's target range of two to four percent by 2023,” said BSP. The balance of risks to the inflation outlook still on the upside for both 2022 and 2023.
The Monetary Board will Thursday, June 23, for its next policy stance meeting. Diokno and Monetary Board member Felipe M. Medalla who is the next BSP chief, has both signalled another rate hike of 25 basis points (bps) this week. However, after the US Federal Reserves raised its key rates by 50 bps last Wednesday, most analysts now expect the BSP to increase its own rates higher or by 50 bps instead of the 25 bps.
The Monetary Board already increased its policy rate by 25 bps last May 19, after freezing it at two percent since November 2020.