Waiving dividends from government financial institutions (GFIs) to fund the Maharlika Investment Fund (MIF) could further squeeze the country's fiscal space, according to a global think tank.

Diwa Guinigundo, Philippine country analyst at New York-based GlobalSource Partners, said the move to waive potential income from the dividends remitted by the Land Bank of the Philippines and Development Bank of the Philippines (DBP) could tighten the country's fiscal space.

'By waiving its potential income from GFIs' dividends to fund the MIF, the Philippine government is also denying itself additional revenues. Unless this is compensated by higher taxes or higher borrowings or both, fiscal space could be compressed further,' Guinigundo, a former deputy governor of the Bangko Sentral ng Pilipinas (BSP), said.

He cited the issuance of Executive Order 43 by President Marcos reducing the percentage of the net earnings to be declared and remitted by Landbank to zero from 50 percent.

He said DBP has also indicated it would be applying for the same possible assistance.

Guinigundo said the Malacañang order overrides the current law on dividends, compelling public corporations to remit at least 50 percent of their net earnings to the government.

'This move could impose both fiscal sustainability and financial stability consequences,' he warned.

BSP Governor Eli Remolona Jr. confirmed that both GFIs are seeking regulatory relief from the capital requirements of the regulator after turning over a combined P75 billion to the MIF.

Landbank remitted P50 billion while DBP infused P25 billion as seed funding for the wealth fund.

On the other hand, the BSP has remitted P31 billion as dividend to the national coffers this year and is scheduled to pay another P31 billion next year.

Guinigundo said the P75-billion contributions made by both Landbank and DBP are subject to 100 percent capital charge.

'Unless they build up their capital, or are given more time to do so, their lending operations could be constrained. They could fail in their statutory mission of helping agriculture and industry, as well as in putting up critical infrastructure in the Philippines,' he said.

By extending assistance to the two GFIs, Guinigundo said the BSP would be effectively belying the claims of both institutions that their balance sheets are essentially robust.

'But if no support is given, the GFIs might eventually go into trouble. They could end up violating the

BSP's regulatory capital requirements, and penalized with controls on lending and declaration of dividends,' he said.

He pointed out that financial stability becomes a challenge when depositors eventually become jittery and market confidence is eroded.

'First, the two GFIs issued statements allaying fears of depositors that their savings would be compromised by the remittance of their respective shares to the MIF. They assured the depositors that they were liquid and stable, that they sought regulatory relief just to avoid fines and penalties,' he said.

President Marcos has suspended the implementing rules and regulations of Republic Act 11954 establishing the MIF last Oct. 18 to ensure safeguards are in place for 'transparency and accountability.'

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