BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said fiscal stimulus needs to catch up with the aggressive monetary measures adopted by the central bank to effect a recovery from the coronavirus disease 2019 (COVID-19) emergency.

“As the government moves into the next phase of the road to the New Economy, it should focus on a quick-disbursing, employment-creating program. It needs a supplemental budget, the size of which can be decided upon by the President with the recommendation of his economic managers,” Mr. Diokno said in a text message in reply to a query from BusinessWorld Monday.

Mr. Diokno said in an interview with ABS-CBN News Channel that monetary policy is not the only tool available to the government and that a supplemental budget may be needed during this crisis.

Pressed for details, Mr. Diokno said that every percentage point increase in the deficit would represent P200 billion in ‘new’ spending.

“Some of the ‘new’ money can be used for emergency employment aimed at creating two million new jobs,” he said.

Mr. Diokno said barangays could put residents to work on green projects, public works or health projects to keep people employed until December.

“Emergency employment is quick-disbursing and will have a high multiplier effect. It is pro-poor and egalitarian,” Mr. Diokno said.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said that the realignment of the budget for current and more urgent priorities is welcome.

“However, an exogenous injection to the economy should be done on the fiscal side to help further the creation (and/or protection) of jobs and health care,” he said in an e-mail.

Finance Secretary Carlos G. Dominguez III has said that he expects the budget deficit to hit P1 trillion this year amid emergency spending on the pandemic. This total is over 5% of gross domestic product (GDP). Economic managers have set a 5.3% cap for the deficit this year, higher than the 3.2% cap set before the outbreak.

Mr. Dominguez said last week that there are no plans to ask Congress for a supplemental budget despite rising expenditures.

Security Bank Corp. chief economist Robert Dan J. Roces noted that stimulus legislation so far filed has been “comprehensive” in terms of structure and targets.

“Even with a budget deficit, instituting these complementary fiscal initiatives will insulate taxpayers from the costs of the crisis in the long run. It will also strengthen the policy responses being undertaken,” Mr. Roces said.

The House of Representatives is currently putting together a bill that if approved will become the Philippine Economic Stimulus Act (PESA). It seeks to provide P475 billion to help businesses recover from the effects of COVID-19 between 2020 and 2022. It also includes wage subsidies and cash for work through the Department of Labor and Employment.

ING Bank NV-Manila Senior Economist Nicholas Antonio T. Mapa noted that fiscal measures from the government during the pandemic came through the social amelioration program, income subsidies and cash grants issued via local governments. He also noted that the government stuck to its pre-COVID-19 playbook by pushing for tax reform and infrastructure to help effect a recovery.

“We are now in need of a fiscal rescue package as the economy is on the brink of recession. Focus should be on one thing and one thing alone: job retention or job replacement,” Mr. Mapa said.

Mr. Mapa cited the German government, which opted to subsidize worker incomes while the economy is recovering.

“Thus we believe that investing a little more now, running up the budget deficit in these dire times will be the more cost-effective strategy than to hold on to fiscal targets today, only to spend more tomorrow to retrench and retrain the scores of unemployed,” he said.

Mr. Diokno has said that the central bank will assess how banks have so far responded in order to gauge the next monetary policy moves, which could be directed at supporting the financial markets as well as the broader economy.

“But I think it will be prudent on our part to pause at this time and see how the economy is responding to the series of policy moves being done by the Monetary Board,” he said.

So far, the BSP has brought down policy rates by 125 basis points this year, lowering the overnight reverse repurchase, deposit and lending to 2.75%, 3.75%, and 2.75%, respectively, in a bid to cushion the impact of the virus on the economy.

The central bank has also reduced the reserve requirement ratio of big banks by 200 basis points to 12%. The reserve requirement has been maintained for thrift and rural banks at 4% and 3%, respectively.

Mr. Diokno has been authorized by the Monetary Board to reduce the RRR by up to 400 bps this year. — Luz Wendy T. Noble