Stimulus needed

The impact of the health pandemic on the broader Philippine economy is there for all to see in the grim 0.2-percent contraction of the country’s gross domestic product (GDP) in the first quarter.

Although part of the decline was caused by disruptions due to the eruption of Taal Volcano earlier in the year, the COVID-19 outbreak not only slowed global trade and tourism, but also dampened domestic economic activity with the sweeping lockdown and business closures the government imposed to contain the spread of the virus.

The government and the private sector must now work together to find the best way to stimulate the economy back to its recovery path, at the earliest signs of the pandemic easing.

There is already in the House of Representatives a proposed Philippine Economic Stimulus Act of 2020 that seeks to spend P1.3 trillion to help the economy recover from this crisis. It calls for, among others, a budget of P650 billion for an expanded infrastructure program on health care, education, and food security; P300 billion to put up a National Emergency and Investment Corp. to help distressed firms; P200 billion for the grant of interest-free loans to assist micro, small, and medium enterprises; P128 billion to set up a Credit Mediation and Restructuring Guarantee Fund to assist “critically impacted” businesses; and P110 billion in wage subsidies to affected workers, including overseas Filipino workers who lost their jobs due to the pandemic.

The focus on infrastructure in a government-initiated stimulus program is a tested formula adopted by many countries after an economic crisis or recession. As Albay 2nd District Rep. Joey Salceda explained, infrastructure remains one of the most powerful economic stimulus tools—especially if the projects are finished on time. The chair of the House committee on ways and means noted that every P200 billion spent on infrastructure could create up to 463,000 jobs in the year it would be spent.

The constraint is that the government can only spend so much on infrastructure, as its tax revenues were also eroded by the public health crisis. It also has to limit its borrowings so as not to create a future debt trap. Thus, an important component of the stimulus program is to involve the private sector in the equation.

Monetary authorities are doing their part by making the credit market conducive to private sector borrowers through low interest rates and increasing the available funds of banks for lending. The Bangko Sentral ng Pilipinas has so far cut policy rates (which affect bank lending rates) by a total of 1.25 percentage points and lowered by 2 percentage points the reserve requirement, or the percentage of deposits that banks need to keep in the BSP vaults. When a semblance of normalcy returns, the hope is that private enterprises will be enticed by the low interest rates to borrow and finance the resumption of their businesses.

The government needs to direct fiscal and other assistance to private sector components severely affected by the pandemic. These include travel and tourism enterprises, including airlines, which cannot be revived soon hence the need for some repurposing of their employees and even businesses (some foreign airlines have retrained staff to become health frontliners); seafaring, particularly the cruise sector where many Filipinos are employed; automotive industry and manufacturing, which suddenly saw sales slump because of the lockdown; and agriculture, a sector that particularly suffered from supply chain disruptions as entry to their main market — the National Capital Region — was hampered by the lockdown.

Even if the end to the pandemic is still nowhere in sight, the government — together with the private sector — should already be drawing up a plan on how to effectively restart the economy, focusing on generating as much employment as possible and helping distressed businesses get back on their feet. Emphasis should be given to protecting workers and their jobs, supporting MSMEs, and stimulating the economy through government pump-priming via its critical infrastructure program (run more efficiently this time by being made to deliver within schedule). The proposed stimulus package in Congress should be a good starting point.