Slow recovery

The Philippines has been tagged as one of the few countries where recovery from the COVID-19 pandemic will be markedly slow despite having enforced the strictest lockdown in the region earlier this year. The reason cited for this somber projection is the insufficient amount earmarked by the government to contain the health crisis and resuscitate the depressed economy.

Despite having the biggest number of COVID-19 cases in the region, the Philippines’ war chest against COVID-19 amounted to only $21.45 billion (or P1.04 trillion), according to the latest Asian Development Bank data. This is equivalent to 5.83 percent of gross domestic product (GDP). If divided among the population, it translates to $201.11 or about P9,750 per Filipino.

In Southeast Asia, Singapore has the biggest budget at $16,337.50 per person, followed by Malaysia, $2,488.18; Thailand, $1,211.20; Brunei, $741.61; and Indonesia, $432.54.

The government is indeed constrained for cash. As the economy entered a recession because of the pandemic, business operations either slowed down or completely stopped. As a result, tax collection plummeted. Last May, the Development Budget Coordination Committee slashed this year’s revenue collection target to P2.61 trillion from the original 2020 program of P3.49 trillion. The 2021 revenue goal was also reduced to P2.93 trillion from P3.85 trillion previously, while that for 2022 was cut to P3.27 trillion from P4.31 trillion.

The government then had to resort to a lot of borrowings. In fact, President Duterte is projected to leave behind a record P13.7 trillion in debt when he steps down in 2022, elevating the country’s debt-to-GDP ratio to its highest in 17 years. Documents presented to the House appropriations committee hearings on the proposed P4.5-trillion 2021 national budget showed that gross borrowings will hit P3 trillion this year, P3.03 trillion in 2021, and P2.32 trillion in 2022. These borrowings will jack up the Philippines’ outstanding debt to new highs of P10.16 trillion by the end of 2020 and P11.98 trillion in 2021. The ratio of debt to GDP, which reflects the ability to pay, will rise to 53.9 percent by end of this year, 58.1 percent in 2021, and 59.9 percent in 2022.

The private sector, on the other hand, is holding back on new investments because of the increased risk arising from the recession. The Bangko Sentral ng Pilipinas has eased monetary policy to release cash into the system and hopefully revive the economy. Its record of monetary easing has so far freed more than P1.9 trillion in liquidity into the local financial system. However, the latest data on domestic liquidity and bank lending indicate that credit activity has been tepid as banks remain generally cautious, while households and businesses are reluctant to borrow.

At the end of the day, it will take the collective effort of the government and the private sector to resuscitate the economy. For the government, it can consider other means to offset the decline in tax revenues, including the sale of assets that are better off in private hands. It can also look at governance policies that hinder recovery efforts. For example, travel and tourism can be boosted if the government will standardize rules. As of now, governors and mayors impose different protocols and requirements for people and carriers traveling to their jurisdiction. Domestic tourism can surely help revitalize the economy because of its high multiplier effect.

The private sector, instead of holding back and waiting for better economic times, may look at collaborating with the government in projects that will address infrastructure development and the delivery of public services, many of which are in the “Build, build, build” program. As the head of a private think tank pointed out in a recent forum, it is the private sector that provides significant employment and a stable income to people. However, neither the government nor the private sector has all the necessary resources at its disposal. What the country needs at this time, as many observers and critics have repeatedly emphasized, is a whole-of-society approach uniting the government, the private sector, and the citizenry in dealing with the COVID-19 crisis and finding ways to boost and sustain economic recovery.