(An excerpt from the speech delivered by Governor Benjamin Diokno for the Tuesday Club Press Event)
The year 2020 was a memorable one because of the COVID-19 pandemic. It was more than a health crisis, as the country also felt its debilitating impact on lives, livelihoods, and inequality.
The Philippines, however, was in a position of strength before the dawn of the crisis as its strong macroeconomic fundamentals prior to the pandemic—manageable inflation, a strong and resilient banking system, a prudent fiscal position, and a hefty level of gross international reserves—cushioned the economic impact of the crisis.
Pulling through
Thinking ahead, the Bangko Sentral ng Pilipinas swiftly deployed a set of comprehensive measures aimed to support the economy during this critical situation.
The Monetary Board cut the policy rate by 200 basis points and the reserve requirement by another 200 basis points. This action resulted in the country’s interest rate hitting a historic low.
To calm the market and inject liquidity into the system, we also adopted a wide range of measures that deployed almost two trillion pesos, equivalent to about 10 percent of the 2019 GDP.
The peso appreciated by approximately 5.67 percent—from P50.74 to the US dollar as of end 2019 to its current rate of P48.021. It was further supported by the gradual recovery in external accounts such as foreign direct investments (FDI) and overseas Filipino remittances.
By the end of November 2020, the country’s gross international reserves, or GIR, hit an all-time high of US$105 billion—three times the import requirements of the country.
It also helped that the Philippines received its highest credit ratings in history before the pandemic began. As such, the country accessed financing with low-interest rates and a long repayment period.
We likewise made loans to micro, small, and medium enterprises (MSMEs) count against banks’ reserve requirement ratio (RRR). This move directed capital to a sector that employs two-thirds of Filipino workers.
Embracing digitalization and financial technology has helped most of us adapt to these changing and challenging times.
Even before the pandemic, the BSP actively promoted financial technology and the shift to digitalization.
The fruits of this advocacy have become a survival tool during the lockdown and enabled us to continue with our transactions within the safety of our homes.
We expect the economy to bounce back by 6.5 to 7.5 percent next year based on available information.
With the easing of restrictions, improvements in the healthcare system, and the full cooperation from us to do what it takes to keep viral transmission under control, this growth target is easily attainable.
With the expanding economic activity, we expect the unemployment rate to fall from a record-high 17.6 percent in April—the height of the lockdown—to 7 percent in 2021.
Starting anew
Deep into the pandemic and during the strictest part of the lockdown, we have exhibited fortitude and resilience as individuals and as a nation.
But resilience is not enough. We must collect and harness significant lessons from this experience so when we find ourselves in a similar situation in the future, we will be more prepared and know exactly what to do.
We should keep in mind that famous quote: tough times don’t last; tough people do.
Finally, as with any other significant disruption in our history, it is my fervent hope that this crisis will usher in a new economy—one that is more robust, more inclusive, more technologically-savvy.
As soon as this pandemic fades, I expect the Philippines to become nothing less than an economic champion.