The national government will repay its outstanding P540 billion provisional advances to the Bangko Sentral ng Pilipinas (BSP) this week, ahead of the January 12, 2022 maturity date, and downsized its request for liquidity support to P300 billion next year amidst an improved economic outlook, the Department of Finance (DOF) said yesterday.
Finance Secretary Carlos Dominguez, in a letter addressed to BSP Governor Benjamin Diokno, said the lower amount of P300 billion 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 DOF said National Treasurer Rosalia de Leon recommended the early repayment of the P540 billion provisional advances, which will be settled on December 10, on the basis of favorable cash position brought about by promising revenue collections and overwhelming support in the recent retail treasury bond offering.
“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 December 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,” Dominguez added.
The new P300 billion provisional advances to be requested in January will have similar terms as the earlier loan: zero interest, and three-month maturity with another three-month extension, as recommended by de Leon.
De Leon also recommended that the P300 billion advances be fully repaid before the end of June 2022 to fully unwind the liquidity support before the start of the next administration.
The extension of provisional advances is a temporary arrangement between the BSP and the national government to provide the latter access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale of the borrowing need and the unpredictability of financial markets amid the pandemic.
Under Section 89 of The New Central Bank Act, the BSP may make direct provisional advances with or without interest to the national government to finance expenditures authorized in its annual appropriation, on condition that said advances shall be repaid before the end of three months, extendible by another three months as the Monetary Board may allow following the date the national government received such provisional advances.
Initially, the advances were in the form of a zero-interest repurchase agreement 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 this December.
De Leon said the national government has accessed the facility in four cycles already at volumes that are consistently below the maximum loanable amount of P564 billion in 2020 and P589 billion in 2021. — Angela Celis
