Philippines Says No Debt Blowout, Sees Reviving Demand Tough

(Bloomberg) -- Philippine Finance Secretary Carlos Dominguez said he doesn’t see a need for outsized government borrowings, betting that the recovery plan and the promise of a vaccine will spur an economic rebound next year.

“No need to get out of the normal loan programs we have planned,” Dominguez said in an interview with Bloomberg Television’s Rishaad Salamat and Juliette Saly. The finance chief also said he doesn’t see the necessity “at this point” for the government to add to its central bank borrowing.

The Philippines, which has the second-highest number of Covid-19 infections in Southeast Asia, saw its economy contract in the past three quarters from a year ago as lockdown restrictions hurt consumption. To aid the fiscal sector, the central bank started lending to the government earlier this year, with the latest loan of 540 billion pesos ($11.2 billion) approved in October and a room for 280 billion pesos more in credit through 2022.

“We’re having difficulty, of course, due to the contagion, with re-stimulating people’s demand,” the finance chief said. “People are still very cautious about getting sick and therefore, are holding back on spending. But we believe we’re on the right track.”

The economy will perform better this quarter and may stage a “big bounceback’ in 2021, Dominguez said, counting on the availability of a vaccine by then. “We are seeing a lot of green shoots coming up,” he said, citing the resilience of overseas Filipinos remittances which dropped by a less-than-expected 1.4% in the first nine months, a record-high reserves, a strong peso and a firm housing market.

The financial market, too, has stabilized, allowing the central bank to reduce its purchases of government bonds from the secondary market, the monetary authority said separately on Tuesday.

Philippine Central Bank Scales Down Government Bond Purchases

As the economy reopens, jobs were being restored, Dominguez said, expecting the unemployment rate to eventually drop to below 5%. Fiscal measures, including the reduction in corporate income taxes to provide more relief to companies and consumers are being pushed in Congress, he said.

The country’s financial health remains strong, he said, even as the government estimates that the budget deficit this year could reach as much as 9.6% of gross domestic product.

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Three strong typhoons in the past weeks have killed more than 100 people and damaged about 25 billion pesos of infrastructure and farm output in the main Luzon island, which makes up 70% of the economy.

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