Duterte Gets More Fiscal Powers as Central Bank Boosts Liquidity
Duterte Gets More Fiscal Powers as Central Bank Cuts RRR
(Bloomberg) --
Facing the prospect of its first recession since the 1990s, the Philippines gave President Rodrigo Duterte more fiscal powers and the central bank boosted liquidity to counter the economic fallout from the coronavirus.
The economy’s performance this year could range anywhere from a 0.6% contraction to 4.3% expansion, assuming the virus outbreak lasts until mid-year, Economic Planning Secretary Ernesto Pernia said on Tuesday. Hours later the central bank announced a 2 percentage-point reduction in its reserve requirement ratio and flagged more cuts to come.
The Philippines has imposed a month-long lockdown of the main Luzon island -- accounting for more than 70% of national output -- to help contain an outbreak that doctors say would overwhelm the nation’s health care system. The number of infections rose to 501 as of Tuesday, with 33 deaths.
Early Tuesday the legislature gave the president extraordinary powers to fight the pandemic, including the ability to reroute funds from this year’s 4.1 trillion-peso ($80 billion) budget and “direct the operations” of businesses such as hospitals.
The central bank has ramped up its effort to support the economy. It cut its benchmark rate by 50 basis points last week and approved regulatory relief to lenders. On Monday, the central bank said it will buy 300 billion pesos in government debt.
Market Rebound
The reserve ratio will drop to 12% by March 30, having steadily declined from 18% in May last year. The central bank has said it’s looking to lower the ratio by as much as 400 basis points this year.
“This is good news and what everybody is waiting for,” said Robert Ramos, chief investment officer at East West Banking Corp. in Manila. “The markets will take it positively as it will benefit the economy.”
Philippine Stock Exchange Index, which sank by a record on March 19 following an unprecedented two-day halt, rose as much as 2.4% on Tuesday before closing 0.7% higher. The peso climbed 0.8% against the dollar at the end of spot trading.
Pernia said the lockdown will hit domestic consumption, which accounts for two-thirds of the country’s gross domestic product, while manufacturing could also be negatively impacted. A 0.6% contraction would mean the country’s first recession since 1998, after 5.9% growth last year made the Philippines one of Asia’s fastest-growing economies.
Finance Secretary Carlos Dominguez said in a mobile-phone text message Tuesday that the government plans to reallocate 275 billion pesos from unused and non-essential items in the budget to spend on virus measures, with a separate stimulus plan drawn from fresh funding also in the works.
Indonesia is also reallocating spending in its budget to combat the virus, while seeking to ease restrictions on its fiscal deficit.
For the Philippines, “the extraordinary boost for and realignment of the budget is essential to keep the economy from sinking,” said Emilio Neri, lead economist at Bank of the Philippine Islands in Manila. At the same time, he said “direct and complete control over the operations, even of selected companies, is unnecessary.”
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