THE national government is set to fully repay this week its outstanding P540-billion provisional advances from Bangko Sentral ng Pilipinas (BSP). It is also set to request a lower liquidity support of P300 billion by the second week of January 2022.
Finance Secretary Carlos G. Dominguez III informed the Monetary Board that the government’s plan to seek a lower amount as provisional advance in January 2022 signals to the market “that we are on track with the unwinding of liquidity support on firmer evidence of return to economic strength.”
In a letter addressed to BSP Governor Benjamin Diokno, Dominguez said, “The extension of a new P300-billion provisional advances will ensure sufficient resources for the government to safeguard this promising but still fragile recovery.”
The new P300-billion provisional advances to be requested in January will have similar terms as the earlier loan: (i) zero interest, and (ii) three-month maturity with another three-month extension, as recommended by National Treasurer Rosalia V. de Leon.
De Leon also recommended that the P300-billion advances be fully repaid before the end of June 2022 to fully unwind the liquidity support before the start of the next administration.
De Leon was also the one who recommended the early repayment of the P540-billion provisional advances, which will be settled on December 10, on the basis of a favorable cash position brought about by promising revenue collections and overwhelming support in the recent Retail Treasury Bond offering.
The P540-billion outstanding provisional advances were supposed to mature on January 12, 2022. “We have seen economic recovery already begin to take root as more businesses embark on a safe reopening with the successful rollout of the government’s mass vaccination program,” Dominguez said.
The extension of provisional advances, which is a temporary arrangement between the BSP and the national government, was meant to provide the government access to cash resources at a time that revenue generation was weak and the fulfillment of the borrowing program was challenged by the scale of the borrowing need and the unpredictability of financial markets amid the Covid-19 pandemic.
Funds granted under this short-term lending arrangement are not used for direct financing of government operations but serve as a liquidity gap measure that ensures the government can undertake large spending in advance of anticipated revenue collections or regular borrowing proceeds.
Under Section 89 of The New Central Bank Act (Republic Act 7653), the BSP may make direct provisional advances with or without interest to the national government to finance expenditures authorized in its annual appropriation, on condition that said advances shall be repaid before the end of three months, extendible by another three months as the Monetary Board may allow following the date the national government received such provisional advances.
Initially, the advances were in the form of a zero-interest repurchase agreement (repo) transaction in the amount of P300 billion, granted in March 2020 and fully repaid in September 2020.
The provisional advances were then converted to a zero-interest 3-month loan in the amount of P540 billion, granted in October 2020 and fully repaid in December 2020. These were again accessed in January 2021, extended in April 2021, and fully repaid in July 2021.
The latest access of provisional advances was in July 2021, which was due in October 2021 and extended to January 2022, but will be fully repaid this December 2021.