Signs And Wonders


During our long years with the Bangko Sentral ng Pilipinas (BSP), we used to prepare briefing folders for every incoming president of the Republic, should some materials about monetary policy, the banking system and the state of the macroeconomy be requested. The leadership of the BSP has always been conscious that the BSP, although a government financial institution, is constitutionally an independent and accountable body corporate. The BSP governor is not part of the cabinet, and his appointment is not confirmed by the Commission on Appointments. Central banking policies are shaped by the collegial decision of the seven-man Monetary Board.

But the monetary authorities have remained engaged with our fiscal authorities because tax policies and public spending exert tremendous impact on domestic demand as well as price and financial stability. In turn, BSP’s periodic adjustments in both interest rates and money supply are key considerations in domestic borrowing by the National Government (NG). This partnership is institutionalized in the cabinet-level Development Budget Coordination Committee where the BSP attends as a resource institution.

We cited our BSP experience to support what was reported in the broadsheets the other day. Finance Secretary Sonny Dominguez, the head of this administration’s economic managers, announced that his department is preparing “a transition plan to help the next administration manage the country’s debt.” His plan consists of a combination of improvements to tax administration to plug what he called existing leakages and updated proposals that leverage on previous reforms.

Needless to say, this will be most helpful to the new president’s ability to hit the ground running after the inauguration at Rizal Park on June 30, 2022.

For the new head of state will be taking the first step in statecraft with a huge NG debt of about P12 trillion, or more than 60% of GDP, by the end of the first half of this year, courtesy of the pandemic and everything else. The Duterte government had little option but to borrow a total of $22.55 billion or roughly P1.15 trillion to respond to the health crisis in the last two years. Its last six months will be no different.

The global context of the briefer to the new Philippine political leadership will certainly help bring it up to speed. First, never, never forget what IMF Managing Director Kristalina Georgieva called “economic long COVID” in her remarks before the Group of 20 virtual meeting on Feb. 18 in Brussels, Belgium under Indonesia’s chairmanship. Global economic losses were estimated at nearly $14 trillion by end-2024, and durable economic recovery is impossible without the virus being completely neutralized. It is sobering to know that the Fund remains wary of COVID-19 virus because nobody knows how it is going to mutate in the future, even as the viral spread has gone down in many parts of the world.

In this connection, Bill Gates’ recent view should keep us on our toes. Yes, “the risk of catching severe COVID-19 infection has dramatically reduced,” but there could be another pandemic. “It will be a different pathogen next time.”

He cites what Australia did to contain and manage the current pandemic as the way to deal with other pandemics in the future: act quickly and decisively based on good data; collaborate across all government levels including a one-day passage of a $130-billion economic bailout including six-month wage subsidy; build social capital to build trust among the public like providing easy access to diagnostics and healthcare facilities; and open lines of communication to ascertain actual needs on the ground and deliver them fast.

Incompetence and corruption should be purged from the health and economic recovery equation.

In the Philippines, it is not enough for the new president to know that starting 2020 and onwards for the next 10 to 40 years, the pandemic cost to us is going to be a whopping P41.4 trillion, eight times our average annual budget. Its direct hit on private investment and human capital investment was just too severe.

The briefing folders may have to clarify that we need to go beyond the old mold of focusing our strategy towards just more vaccination rollouts. As the Fund reminds the world, and as confirmed by Australia, good access to a comprehensive COVID-19 toolkit that includes both diagnostics and therapies is most effective. This will require more public spending on medical research, disease surveillance, and a health system that would empower us to reach “the last mile.”

Next, Georgieva also called attention to the challenges of a tightening monetary cycle. Obviously, not all countries share the same business and financial cycles. However, because the US and other big economies are about to get themselves wet in the new normal of monetary tightening given their strong output performance and spiraling inflation, it is the spillover risks that should concern emerging markets like the Philippines.

The BSP’s exit strategy may already be unwrapped to provide additional forward guidance to the market, even if conditions are attached. The point is to bolster market confidence that the monetary authorities are prepared to act when the markers start to move.

While the prognosis on price movement in the Philippines is pointing to the north at 3.7% and 3.3% for 2022 and 2023, respectively, it looks like such forecasts may have to be recast. The assumptions on oil and the exchange rate may no longer be consistent with the latest readings. Oil prices are closer to $95 per barrel and the peso is now exchanging at more than P51 to a dollar. Both may stay that way far longer than expected, such that their averages could be higher. True, the BSP can be patient with its stance, but a preemptive move seems wise because monetary policy may take a while before its impact is felt in the real sector. In fact, when our authorities decide it is time to act, we might have already missed the boat.

And finally, the IMF also flagged the imperative of fiscal sustainability. This is what Secretary Dominguez has started to prepare to help the new administration navigate the treacherous waters of fiscal and debt sustainability. Extraordinary stimulus helped cushion the impact of death and joblessness but with tax collection down, heavy indebtedness is almost inevitable.

The numbers could be frightening. Pre-crisis, fiscal deficit aggregated P660 billion or 3.4% of GDP. In the first year of the pandemic, it rose to P1.37 trillion or 7.6% of GDP. As of November 2021, the shortfall exceeded P1.33 trillion or 8.3% of GDP.

These deficits were funded by borrowings, here and abroad. In 2019, NG debt was only at P7.73 trillion or 39.6% of GDP. We had to borrow to cover the gap, bringing the NG debt to P9.79 trillion or 54.6% of GDP in 2020, and P11.73 trillion or 60.5% of GDP in 2021. No matter how one looks at these numbers, they need to be managed.

It was good we had fiscal space when the virus started to dominate our lives. The country benefitted from its investment-grade credit rating to secure funds from abroad to fund our pandemic response. The task would have been easier if we remained firm in realigning the budget to support health and education, rather than counter-insurgency and political intelligence. Avoidance of corruption in the procurement of medical supplies, medicine and vaccines could have provided our budget more mileage. The BSP’s accommodative and low interest rate regime somewhat lessened the public burden from a pandemic-induced borrowing spree.

We can all welcome and pray for the recipient of the briefing folders on what a new head of state ought to know on day one of serving this beloved Republic. A most appropriate Indonesian phrase to capture our pursuit of good governance is gotong royong or “working together to achieve a common goal.” That common goal, without reservation, is first to restore public trust in an honest, competent, righteous, and just government.


Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.