The government is set to repay on Wednesday the P300 billion it borrowed from the Bangko Sentral ng Pilipinas through a repurchase agreement with the Bureau of the Treasury in March, Finance Secretary Carlos Dominguez III said Tuesday.
"Yes," Dominguez said in a short message to reporters. The repo agreement will expire by the end of this month.
The BSP’s charter allows the central bank to “advance” P300 billion to the national government through a repurchase agreement with the Bureau of the Treasury.
The BSP in June renewed the agreement for another three months.
The Bayanihan 2 Act, a fiscal COVID-19 rescue plan, contains a provision that allows the BSP to buy up to P850 billion (from P540 billion) worth of bonds from the primary market to help in debt financing.
An economist earlier warned that the BSP might lose its sterling credibility and its independence would be questioned if the repo agreement with the Treasury would be rolled over, which could constitute a de facto debt monetization.
"Should BSP allow continuous rollovers of upsized repurchases agreements, they may be engaging in de facto debt monetization, which may likely not be well received by the market," ING Bank Manila senior economist Nicholas Mapa said in a report.
He said the central bank continued to "single handedly provide the much-needed stimulus to the economy while fiscal authorities stock pile funds and yet roll out modest stimulus packages."
Mapa mentioned the move by Indonesia’s finance ministry early this year when it announced a “burden sharing” arrangement where Bank Indonesia would buy up bonds in the primary market to help finance the deficit in the fight against COVID-19.
He said authorities pledged the move would be a one-off incident given the extreme circumstances. He said Bank Indonesia faced a firestorm recently when a panel of experts from Indonesia proposed ceding more control of Bank Indonesia's monetary board to the finance ministry, opening the door for successive rounds of debt monetization, once perceived as taboo in central bank circles.