The economic downturn resulting from the recent global financial crisis brought to light the importance of policy coordination in promoting macroeconomic stability. The close coordination of monetary, regulatory, and fiscal policies was critical to the restoration of global financial stability. This, in turn, paved the way for business confidence to improve and ultimately, for economic recovery to take root. Interaction of different policies is likely to remain the new modus operandi for economic policy markers. In this regard, promoting closer coordination of macroeconomic and financial sector policies could be explored, including through a wider representation in the Financial Sector Forum (FSF).6
On the external sector, policymakers will continue to adopt appropriate measures that will cushion the economy from external shocks as well as ensure the health of the country's external payments position and the sustainability of its external debt over the medium-term.
The monetary authorities will continue to adopt a flexible exhange rate policy to help the economy to be better insulated against external shocks.
The foreign exchange regulatory framework will be further reviewed to keep it responsive to the needs of an expanding and increasingly integrated economy. Since 2007, the monetary authorities have undertaken four major phases of foreign exchange reforms. The reforms brought greater access to foreign exchange resources for trade, investment and other foreign transactions. The measures also facilitate the diversification of investment portfolios and help reduce the economy's vulnerability to shocks.
The country's external debt shall be maintained at more manageable and sustainable levels. This shall entail appropriately designing the external debt structure to minimize risks emanating from currency and maturity mismatches. With respect to the NG, it will review the country's sovereign bonds and debt profile to identify which instruments shall be eligible for its bond exchange program. This program aims to boost liquidity sourced from longer-dated securities and to provide long-term financing for government initiatives promoting PPP for infrastructure and economic development.
The monetary authorities will also endeavour to maintain the external debt stock and the external debt service burden at sustainable levels. This will entail continuing the comprehensive and regular monitoring of the level and maturity profile of the country's external debt and the conduct of debt sustainability assessments.
Complementing the sound management of external debt level, the monetary authorities will also build cushions against shocks by promoting an adequate level of international reserves.
Furthermore, policymakers will need to focus on leveraging remittances as a tool for economic development. While remittances are private transfers, the government can ensure that the policy environment is conducive to the use of remittances for investment in well-considered financial products, in productive activities such as entrepreneurial undertaking as well as in better housing, education, and healthcare for remitters and their beneficiaries. Improving the financial education of the overseas Filipino community and implementing measures to further promote the flow of remittances through the financial system would help catalyze the developmental role of remittances.
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6 The Financial Sector Forum (FSF) in an interagency body composed of the BSP, Securities and Exchange Commission (SEC), Insurance Commission (IC), and the Philippine Depository Insurance Corporation (PDIC). The FSF principally provides an institutionalized framework for coordinating the supervision and regulation of the financial system, for strengthening the exchange of information among the different regulators, and for the promotion of better consumer protection.