Duterte government wants new provisional P540-B advance from central bank

The Duterte administration has requested a new provisional advance from Bangko Sentral ng Pilipinas (BSP) in the amount of P540 billion.

“The NG has requested that a new provisional advance of P540 billion be settled before December 29 (2020) at zero interest,” according to BSP Governor Benjamin E. Diokno.

According to Diokno, the Monetary Board is ready to review the government’s request for a new provisional advance. She also said that the proposed advances will be used as budget support, which is for “deficit financing as a result of the coronavirus pandemic.”

For the month of August, the government reported a budget deficit of P40.1 billion. So far this year, the deficit has shot up to P740.7 billion.

Under the BSP statutes, it is allowed to enter into repurchase or repurchase agreements with the government. According to its law, the BSP can advance to the government a maximum of 20 percent of the average income of the National Government during the last three years, or from 2017 to 2019.

This advance is short-term or only three months, but renewable for another three months. With this option, the government can withdraw up to P564 billion, of which P300 billion has been recovered in March to fund its anti-pandemic programs. The BSP purchased government securities from the Treasury Office under a repurchase agreement.

The National Government under the second law “Bayanihan to recover as one” has another window to request a new provisional advance from the BSP that will be 10 percent of the average income of the government during the last three years. The estimated amount for this provisional advance is approximately P282 billion and will have a longer term of one year.

Under Bayanihan 2, the National Government has two years to take advantage of the additional provisional advance before this option expires.

It is not yet known whether the government is entering into another repurchase agreement with the BSP to leverage the P540 billion funds, or if it will be done in another transaction.