So much for sound fundamentals

One realizes that our economic managers—nay, the whole administration—must always cast things in their most positive light. That’s part of the job. With the COVID-19 pandemic, this has become much more of a challenge. And the coming 2022 elections put even more pressure on them.

It has gotten so that one would think, from what they say, that there is nothing wrong with the economy, and the Philippines has gotten the COVID-19 pandemic well in hand. And yet, when reading the updates and outlooks of the Asian Development Bank (ADB), the International Monetary Fund (IMF), the World Bank (WB), the reality of the situation is a far cry from the rosy official scenarios.

From Finance Secretary Carlos Dominguez III, who chairs the Duterte Cabinet’s Economic Development Cluster (EDC), in March 2020: “The country and the government have all the tools—medical, financial, and monetary—to successfully handle this situation.”

Chimed in Bangko Sentral Governor Ben Diokno: “There is no reason to believe that the COVID-19 crisis could severely cut the Philippine growth momentum. The truth is that the economic fundamentals are on our side. Even under the worst possible scenario, the Philippines can still grow this year and in the medium term by about 6 percent.”

And then, all hell broke loose. But let the multilaterals describe it:

The IMF (October 2020) said that the Philippines’ fiscal stimulus program was “limited or inefficiently implemented.” Translation: Our country and the government may not have had all the tools to successfully handle the situation and/or they did not know how to use them. The WB (April 2021) said: The Philippines experienced the sharpest contraction of output among the largest economies of the region. The contraction reflected an uncontrolled COVID-19 outbreak combined with strict nationwide lockdowns and mobility restrictions, a succession of natural disasters, and delays in budget execution which weighed on public investment. What was that contraction? Negative 9.5. Diokno was off the mark by 15.5 percent. What happened was much worse than his “worst scenario.”

Let’s move to more recent comments—made at the Economic Journalists Association of the Philippines (EJAP) on June 15.

Governor Diokno is now a cautious man: “We need robust institutions and sustained policy discipline to see us through this COVID fog.”

Ah. There’s the rub. Do we have robust institutions? Do we have sustained (he used “greater” in another part) policy discipline? What does the evidence show us?

At least the caution is a step in the right direction. But Diokno couldn’t resist the impulse to fudge a bit, and said that the multilateral forecasts of GDP growth for 2021 range from 4.5 percent to 6.9 percent (ADB 4.5, WB 4.7, IMF 6.9), and that the upper end is well within the Neda Development Budget Coordination Committee’s (DBCC) own growth forecast for 2021 of 6.5-7.5 percent.

The EJAP affair on June 15 was the same day the IMF released its new forecast for 2021: 5.4 percent. Which means that Diokno already knew about it, because there were consultations. So why did Diokno stick to the old forecast? At least we know now that the multilaterals’ forecasts are within one percentage point of each other—from 4.5 percent to 5.4 percent, or way below the DBCC forecast.

Secretary Dominguez was more upbeat than Diokno: “We might appear to be behind our neighbors for now, but our recovery will be stronger because of our sound fundamentals” (that refrain again). He also came out with a stunner: The COVID-19 vaccination program “has been rolling out quite well… [it] gives us hope that we can now fully reopen our economy.”

This is so different from the multilaterals’ perspective. All three consider that the greatest downside risk to the Philippines’ already lowered growth forecasts for 2021 is the way we handle the COVID-19 pandemic. Obviously, if they thought we were handling it well, it would not be considered a downside risk.

One last thing: Our growth this quarter is going to be positive. The economic managers will be crowing. It will be because of the “base effect.” The economy’s contraction of 17 percent in the second quarter of last year is going to be the base of this quarter’s growth. So it will be large. The important thing to remember is that the Philippines will get back to its 2019 GDP levels only in the fourth quarter of 2022. Slower than any other country in the Asean 5. So much for sound fundamentals.

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