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“Fiscal policy, monetary policy, they need to work together to try and raise the level of growth.” — Joe Hockey
In what seems to be a promising year for the Philippine economy, it’s potential growth was immediately cut short because of some unanticipated events, particularly the COVID-19 crisis. Since the government issued the enhanced community quarantine, people are encouraged to stay at their homes to control the spread of the virus. Then a ripple effect will transpire. Businesses such as restaurants, malls, and airline companies will be forced to stop operating primarily as compliance with the quarantine policy, and also there will be no one who will purchase their goods or avail of their services. This will result to decline in sales, and eventually termination of employees to mitigate their loss. A new kind of threat will likely emerge – an economic crisis.
But there’s no need worry, dear readers. Our government is equipped with economic tools to prevent the recession from happening, namely the Monetary Policy, and the Fiscal policy.
When various local government units announced the implementation of the enhanced community quarantine in their respective area, the ripple effect mentioned above occurred. Most of the businesses seized operations and left them with no means to generate income that will be used to pay their employees. The affected employees had opted to spend less of their remaining money because they have uncertainties in their future, like when they can earn their next salary. There would be lesser demand for goods and services leading to lesser economic activities, which is bad for a growing economy.
To aid this dilemma, the Banko Sentral ng Pilipinas (BSP) implemented its monetary policy. The Monetary Policy is generally defined as the manipulation of the interest rates and changes in the money supply. In March 2020, BSP lowered its policy rates to 3.75%, the lowest since 2018. This is to encourage the public to apply for credit. If you’re a business owner, you can take advantage of the discounted rates to ensure the continuity of your business. If you are an employee, this allows you to have easier access to funds which will be used to buy your essentials.
Meanwhile, the national government also imposed its Fiscal policy. Fiscal policy is the use of government revenue and expenditure to stimulate the economy i.e. managing tax rates to fund government projects. Various programs are implemented by the government to give economic relief to Filipinos who are greatly affected by the crisis. For example, if you are an employee of a private company that has implemented flexible work arrangements or temporary closures due to COVID-19, and the application is approved, you may receive cash assistance from the Department of Labor and Employment. If you are working or have businesses related to the tourism sector, the government allocated a budget to fund the recovery of the tourism industry by rehabilitating tourism infrastructures. This will generate jobs once the COVID crisis subsides.
There is no single magic bullet can that fix an economic crisis. There are only tools such as monetary policy and fiscal policy to keep it manageable. While these tools can only be executed by the government and the central bank, it is up to us, the public on how to make use of this policy changes at our advantage. When it is cheap to borrow money from the bank, or the government eases on collecting your personal taxes, you find yourself having excess funds. If you want someone to help you on how to invest your extra fund, save for the next economic crisis, or create a good estate plan, talk to a Registered Financial Consultant.
Disclaimer: We want to remind you, dear reader, that the content in this column is my opinion and AlphaEdge Research’s opinion only and should not be construed as investment advice because we’re not your financial adviser nor have we taken into consideration your personal objectives, financial situation, needs or circumstances as your fiduciary. This column is mainly for your entertainment and education only.