During the height of the pandemic in 2020, domestic sectors’ gross savings and real investments decreased by 26.1 percent to P3.695 trillion from P5 trillion in 2019 since lockdown measures to slow the spread of Covid-19 crippled the economy, both local and global, according to a central bank report.

With the government’s containment measures during the first year of the pandemic, the Bangko Sentral ng Pilipinas (BSP) report showed that domestic consumption and production activities came to a grinding halt as businesses closed down and the world’s attention turned to controlling the global health crisis.

Based on the BSP 2020 Philippine Flow of Funds (FOF) report released on Nov. 10, both capital accumulation and savings declined in 2020. The FOF, which is a summary of financial transactions within the economy and the rest of the world, typically has a three-year lag time.

As explained by the BSP, the FOF is part of the system of national accounts or SNA. In the Philippines, it said the FOF is an integrated matrix of capital and financial accounts of each of the institutional sectors and the whole economy, linking saving, capital accumulation, and the associated financial flows.

Savings in this case represents disposable income that is not spent on the final consumption of goods and services while capital accumulation or real investments is the sum of gross capital formation and other capital accumulation.

Based on the FOF, real investments in 2020 declined by 39.5 percent year-on-year from P5.512 trillion to P3.119 trillion.

The government had to borrow funds in 2020 and afterwards, resulting to a local economy that became a net lender vis-à-vis the rest of the world at P575.9 billion, a reversal from its net borrower position of P152.7 billion in 2019, said the BSP.

“This reflected the movement in the country’s current account — which reversed from a deficit in 2019 to a surplus in 2020. The reversal was caused mainly by the contraction in trade in goods deficit, resulting from the sharp decline in the importation of goods,” said the BSP.

The BSP also noted the pandemic’s effect on non-financial corporations’ gross saving which dropped by 20.5 percent to P2.2 trillion in 2020 from P2.8 trillion in the previous year. Core industries, such as manufacturing, real estate, and utilities supply, managed to post net income during the year, albeit about a third lower from 2019.

Meanwhile, the households sector also decreased by 10.6 percent to P983.2 billion from P1.1 trillion in 2019. “The decline in the sector’s saving was due to the adverse effects of the pandemic on domestic and global labor market conditions as reflected through higher unemployment rates and lower inflows of Overseas Filipino personal remittances,” said the BSP.

The financial corporations’ aggregate saving, however, went up by 52.5 percent to P564.4 billion from P370.1 billion. The central bank said that among the financial corporations’ sub-sectors, the other depository corporations and other financial corporations posted higher saving.

In contrast, BSP recorded a "dissaving" in 2020, according to the report.

The general government also became a dissaver at P58.1 billion. This was a reversal from its P801.5 billion saving in 2019. “This was driven mainly by the central government’s dissaving, which arose from the surge in government spending on pandemic-related expenditures along with subdued tax collections,” said the BSP.

As for real investments, the non-financial corporations posted a 43.3 percent drop to P1.6 trillion in 2020 from P2.8 trillion in 2019 due mainly to the decrease in private non-financial corporations’ investing activities.

The general government’s capital accumulation reached P1.1 trillion, 12.3 percent lower than P1.2 trillion recorded in 2019. “All sub-sectors recorded lower real investments during the period, with the central government contributing significantly to the decline in the sector’s capital accumulation,” said the BSP.

Households’ saving as expected due to lockdown measures also declined by 64.4 percent to P343.6 billion from the P965.4 billion in 2019. The BSP said the decline “was driven mainly by the households’ lower investments in real estate which also caused residential real estate loans to decelerate.”

The financial corporations’ real investments also decreased by 24.2 percent to P87.3 billion from P115.1 billion reported. The BSP said the other depository corporations accounted for bigges share in real investments in 2020, followed by the BSP and the other financial corporations.

In terms of lenders and borrowers in the economy in 2020, the BSP said the households sector’s net lender position expanded to P639.6 billion from only P89.6 billion in 2019. “This developed amid the sector’s higher acquisition of financial assets which are mostly in the forms of currency and deposits; equity and investment fund shares; and insurance, pension, and standardized guarantee schemes,” said the BSP.

The financial corporations’ net lending position also increased by 87.2 percent to P477.1 billion while the BSP became a net borrower at P27.6 billion, a reversal from being a net lender of P14.2 billion in 2019.

The general government, for its part, became a larger net borrower in 2020 at P1.1 trillion, which was 167.6 percent higher than its net borrowing of P423.3 billion in 2019, said the BSP.

“The central government’s net borrowing more than doubled amid higher funding requirements for the government’s COVID-19 response measures. This more than offset the combined net lending positions of the local government units and social security funds,” the central bank explained. 

It added that “the general government’s higher net issuances of government securities and increased net loan availments remained important sources of financing during the pandemic.”