MANILA - The Bangko Sentral ng Pilipinas on Thursday said the Monetary Board has approved the National Government’s request for a fresh P540 billion loan.

The BSP announced on Wednesday that the government requested the new loan, which would be settled on or before Dec. 29 this year at zero interest.

“The action of the BSP to provide direct provisional advances to the national government is critical and necessary as the implementation of the lockdown protocols across the country impeded the national government’s revenue streams," said BSP deputy governor Francisco Dakila.

The BSP acknowledged that the central bank lending money to the government, or debt monetization, would be worrisome in normal times because of its potential inflationary effects and its implication on the perception of the central bank's independence.

"However, just like in other countries, the ongoing pandemic has required what we can call a whole of government effort in order to fight the impact of the pandemic on the economy," Dakila said.

The Deputy Governor added that "timing is of the essence" as delays in granting the funds needed by the government could have hampered efforts to address the ill effects of the pandemic and facilitate the recovery of the economy.

He added that there were "sufficient safeguards" as the BSP Charter and the Bayanihan to Recover as One Act or Bayanihan 2, limit the amount of provisional advances that could be granted by the central bank to the government.

According to Bayanihan 2, the central bank cannot lend the government more than 10 percent of the government's average income from 2017 to 2019. The loans are also supposed to be paid within 1 year.

Meanwhile, the BSP said the Bureau of Treasury had already fully settled the previous P300 billion loan granted to it by the central bank.

The government has been borrowing heavily as revenues shrank and expenditures climbed because of the COVID-19 pandemic.

As of end-August, the Philippines’ debt hit P9.615 trillion, which was 21 percent higher compared to the same month last year.

Despite having the longest and strictest lockdown, the Philippines has recorded the most number of infections in Southeast Asia, and also suffered the second-worst economic contraction in the region.

• Loans for COVID-19 response reach P392.94 billion