The Bangko Sentral ng Pilipinas will not tap the new borrowing facility offered by the International Monetary Fund to members affected by the coronavirus disease 2019 pandemic, saying the country’s macroeconomic fundamentals and external position remain strong.
Called Short-Term Liquidity Line, it is a new borrowing facility offered by the IMF to aid members as part of its response to the pandemic. It is designed as a liquidity backstop for members with very strong policy frameworks and fundamentals but face potential, moderate or short-term liquidity needs because of external shocks that generate balance of payments difficulties.
“BSP sees no need to avail of IMF’s short-term liquidity line,” BSP Governor Benjamin Diokno said Tuesday in a message to reporters.
“As I said before, structural reforms and sound economic management have helped the Philippines enter the COVID-19 crisis from a position of strength,” Diokno said.
Diokno cited he country’s overall BOP surplus of $7.84 billion in 2019, the highest in the last seven years. The surplus is two times higher than the $3.7-billion surplus projected for this year.
“Second, the peso is stable. Year to date [as of May 15, 2020], the peso has outperformed most of its peers in the region which is least depreciated and second to the TWD [Taiwan dollar], which is the only currency that appreciated versus the US dollar,” Diokno said.
Diokno said another factor that made the BSP confident of not tapping the IMF borrowing facility was the level of gross international reserves of the country.
As of end-March 2020, the GIR stood at an all-time high of $89 billion, equivalent to 5.3 times the short-term debt based on original maturity and 3.8 times based on residual maturity.
“It is adequate to cover 7.9 months of imports of goods and services and payments of primary income,” Diokno said.
He predicted the GIR would around $93 billion by the end of this year.
Diokno also cited the manageable debt-to-GDP ratio of the country. The debt as a percentage of GDP was estimated at below 40 percent as of end-2019.
The IMF in late April established the Short-term Liquidity Line, the first addition to the IMF’s financing toolkit in almost 10 years. As part of its broader crisis-response strategy, the new facility provides a reliable and renewable credit line, without conditionality to members with very strong fundamentals and policy frameworks—the same qualification criteria as another IMF facility called the Flexible Credit Line.
The SLL is designed to address a special balance-of-payments need—potential, moderate, and short-term—reflected in capital account pressures following external shocks.
A country that signs up for an SLL will signal the IMF’s endorsement of its strong policy frameworks and institutions to markets. That, in turn, can lower their borrowing costs, and provide a welcome support during volatile times.
The SLL can also help reduce future financing needs by helping countries arrest moderate-sized liquidity problems before they can evolve into bigger problems.
Diokno said Monday the economy could track a “U-shaped” recovery this year as long as the second and third-wave of COVID infection was avoided.