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IMF sees efficient deployment of 2021 budget, extended-validity funds as key to recovery

THE International Monetary Fund (IMF) said one of the keys to the Philippine recovery is the efficient use of funding from both the 2021 budget and the various economic measures whose validity has been extended for the year, including the 2020 budget and the second stimulus package, which is known as Bayanihan II.

“It seems to me that it is crucial to execute the budget expeditiously to create more jobs and strengthen social protections,” Yongzheng Yang, IMF resident representative to the Philippines said in an e-mail to BusinessWorld.

Malacañang on Wednesday released Republic Act (RA) No. 11520 and RA No. 11519, which extend the validity of the 2020 budget and Bayanihan II, respectively. The 2021 budget was signed into law on Dec. 28.

RA No. 11520 extends the validity of the 2020 budget to Dec. 31, 2021, while RA No. 11519 extends Bayanihan II, more formally known as the Bayanihan to Recover as One Act, to June 30. The P140-billion pandemic response measure expired on Dec. 19.

The IMF expects the economy to bounce back with growth of 7.4% this year — towards the upper end of the government’s 6.5% to 7.5% estimate. The IMF is set to release its World Economic outlook later this month.

“I continue to note the importance of a renewed infrastructure push, including in emerging growth areas such as the digital economy, healthcare, and climate change,” Mr. Yang said.

“Furthermore, social protection programs should be strengthened as current temporary income support measures are phased out,” he added.

The Department of Budget and Management released allotments worth P4.31 trillion in the eleven months to November, exceeding by 5.1% the P4.1-trillion 2020 budget. The additional funds were tapped to support the government’s pandemic response, and were sourced from unprogrammed allocations of Bayanihan II.

This year, economic managers set the government’s infrastructure spending target at P1.17 trillion. Meanwhile, the spending goal for 2022 is at P1.154 trillion.

Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said in December that infrastructure spending equivalent to 5% of gross domestic product will be sufficient for a strong rebound and will translate to significant job creation.

Unemployment in October was 8.7%, equivalent to 3.813 million out of work. This is lower than the 10% or the 4.571 million unemployed in July, but close to double the year-earlier rate of 4.6% or 2.045 million unemployed.

Mr. Yang stressed the need for a sustained accommodative policy stance from the Bangko Sentral ng Pilipinas (BSP).

“Monetary policy should remain accommodative while the economy is still in the recovery phase. Like in other countries, monetary authorities should avoid a premature withdrawal of support,” Mr. Yang said.

BSP Governor Benjamin E. Diokno has said benchmark policy rates will remain low for the next few quarters to support the economic recovery. He said there is still have room for easing via conventional means but added that the authorities are not keen to push rates below zero.

In November, the central bank slashed rates one last time in 2020 by 25 basis points (bps), bringing the total reduction to 200 bps before a pause in December. The overnight reverse repurchase, lending, and deposit rates are at all-time lows of 2%, 2.5%, and 1.5%, respectively.

Mr. Diokno has cited the need to carefully assess the timing of unwinding the easing measures, considering the serious repercussions that may arise in the financial system from acting too early or too late. — Luz Wendy T. Noble

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