(Bloomberg) — The Philippines has asked the central bank to lend it 540 billion pesos ($11.1 billion) to help finance a budget deficit that’s under strain from Southeast Asia’s worst Covid-19 outbreak.
The government plans to settle the debt on or before Dec. 29 at zero interest, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a mobile-phone message on Wednesday. The request for a “fresh provisional advance” will be submitted to the Monetary Board for approval, he said.
The latest advance would fully use up the amount the central bank is allowed to lend the government under its charter. It comes immediately after the Bureau of the Treasury this week repaid the 300 billion pesos it borrowed from the central bank in March. A pandemic relief law signed earlier this month temporarily raised the cap by another 280 billion pesos, which has a longer repayment period of up to two years.
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The debt plan allows the government to keep its cost of borrowing as low as possible, said Emilio Neri, lead economist at Bank of the Philippine Islands in Manila. Although the arrangement is tolerated by the market, the central bank’s independence and credibility could be at risk if it suggests that its mandate of price and financial stability may have to “take a backseat to give way to the goals of the national government,” he said.
Governments in Southeast Asia have been leaning on central banks for additional fire power as a continued wave of infections wipes out their finances. Bank Indonesia has directly bought about $12 billion in government bonds this year and is prepared to be a standby buyer through 2022.
The Philippines, which has more than 311,000 Covid-19 cases, expects to run up its budget deficit to as high as 9.6% of gross domestic product this year to support an economy that’s facing its deepest contraction in more than three decades.
(Adds details about charter, comments from central bank chief and analyst.)
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