The BSP has turned more hawkish on inflation while the Supreme Court has struck down congressional increases in the recent national budget. We discuss both developments with BSP monetary board member and former finance secretary and former budget secretary, and former Central Bank Governor, Bangko Sentral ng Pilipinas Governor Benjamin Diokno. Good morning, Ben.
Good morning. It's nice to be here.
Thank you so much. We have so much to talk about this morning. I don't know if we'll have enough time, but hopefully we'll just do this as quickly as possible. First of all, the BSP has turned more hawkish and has aggressively increased its key policy rate by 50 basis points to 5.5%. What was the reason behind that?
The inflation has been stubbornly high. In fact, the latest number is 7.2. And it's not only high, it's widespread. If we have inflation by region, all regions were high. The lowest is NCR, surprisingly, but most regions are really that high. And we want to make sure that, given that high inflation, we should be back to our target inflation rate of 3% by maybe in a year, in two years, maybe by 2028.
At the last increase in policy rate last August, it was forecast that inflation would kind of taper down come 2027. But it seems now, at the press conference yesterday of the BSP, DG Zeno had said that the forecast for inflation, while it is still 6.1 for 2026, for 2027, initially last August you had said it would be 5.4, but now it will also be maintained at 6 before it goes down to 3.3 in 2028. So is this what triggered the sense of urgency that BSP Governor Remolona stated?
That's right. We're looking at Q4, the fourth quarter, and the first quarter of next year, and it's still high and could go even higher because I think that is also the forecast of many analysts. They were forecasting a quick resolution of the US-Iran war, but it looks like oil prices will be around for another, maybe for the entire 2027.
And there's an analyst earlier who said that you might also increase once again in December. However, going back to what the BSP governor had said in his press conference yesterday, he said that domestic economic activity is expected to recover and so you are leaving room for you to adjust. So I take this as kind of a statement that this monetary policy must be met with fiscal policy action as well. Is that the sentiment of the BSP?
Correct, correct. I always say this: monetary policy is not the only game in town. I think there's greater responsibility on the part of the fiscal authorities. So we expect them to do more bolder reforms so that we can at least have closer coordination between monetary and fiscal authorities.
From what BSP Governor Eli Remolona said in his statement, the one that I picked up most is he said that we will act as necessary. So if the economy picks up, it's possible that you will bring down rates?
Yeah, there's always that possibility that we might bring down rates in 2027, but we can't talk about that at this time because things are really depressing. Let's put it that way.
Depressing. Yes, parang the economy is being hit from all sides right now. Speaking of fiscal policy, let's now go to the great decision of the Supreme Court on the unprogrammed appropriations. This has been a much anticipated decision by Supreme Court Associate Justice Leonen and a lot of the Supreme Court Justices, although they each had their own concurring or dissenting opinions, it was predominantly in favor of the decision of Supreme Court Senior Associate Justice Marvic Leonen. Do you agree with the decision stating that unprogrammed appropriations for 2024, 2025, and 2026 are unconstitutional?
Agree. I agree. I'm one of the...
And you were one of the amicus curiae.
Amicus curiae. I think we should read this decision by the Supreme Court and we should welcome it in relation to the three recent decisions by the Supreme Court. The first one is Belgica versus Ochoa, right? Where they had comments on the way the budget was implemented under President Aquino. This is under Pinoy, Aquino, Pinoy. And then the most recent one is in terms of their decision on the transfer of funds from...
The December 5, 2025 decision.
PhilHealth funds. Right. And then the most recent, and I think we should look at it in the context of... We should be happy that we have a Supreme Court who's willing to take bold moves, because if you read the Constitution, there are really some fiscally responsible rules there. But over time, these rules have been eroded through acts by Congress and the President. And now at least the Supreme Court is saying, 'Look, this is how we should interpret those fiscal rules.' And I think we should welcome...
Just for those who are unfamiliar with the budget system of the Philippines, maybe we could just give them briefly a bird's-eye view. What are unprogrammed appropriations versus programmed appropriations? And in fact, in the decision, Justice Leonen took pains to explain the history of it, that it started in 1987, why it was introduced, and he even quoted you. And he went through each of the years showing how in the previous administrations the increase in the appropriations between the national expenditure program or the president's budget versus the general appropriations from Congress, where it increased massively just in the past few years. So, just briefly, sir, what are unprogrammed appropriations?
All right, there are three chunks of appropriations under the budget. One is the programmed, where it can be released after day one of the approval of the budget. The other one is the so-called automatically appropriated, which means it doesn't have to be approved by Congress, like debt servicing. That doesn't have to be approved by Congress, or the internal revenue allotment for LGUs, local government units. It doesn't have to be approved by Congress. And it's now NTA, right? But it is presented in the budget just to complete the picture. And then the third one is the unprogrammed appropriation, which is a contingent appropriation. And at the very start, we only used this for foreign-assisted projects, because there are many foreign-assisted projects which during the budget preparation phase are not yet completed, but we are very confident that it will be completed in the year the budget is going to be implemented. So, just in case it's implemented or it's completed, we want a standby appropriation. So that's the nature of the unprogrammed appropriation. And you're right, it started as a very small part of the total budget, and it has ballooned, right? And in the last three years, 2023, '24, and '25, it has really gone wild.
My understanding of the reason why unprogrammed appropriations were created to begin with was to give the budget department, or for the national budget, to have flexibility and be able to obligate projects even while waiting for sources of funding. Is that correct?
No, but you need funds because the Constitution is clear. You have to have funds to authorize the release from the unprogrammed appropriations. And I thought the first two items there are kind of difficult to comply with. For example, one provision is that we have to have excess revenues from taxes. That's A, right? And B, we have to have excess income from non-tax revenues.
The third one is the foreign-assisted projects. The Supreme Court said A and B are unconstitutional. C is constitutional. Yeah.
And also, it was very clear from Justice Leonen's decision that there should be very clearly differentiated conditions...
