Covid seen to cost PHL economy P1.1 trillion

By Cai Ordinario, Businessmirror, 1 May 2020

Policemen guard the 112-bed We Heal As One center at the Ninoy Aquino Stadium inside the Rizal Memorial Sports Complex in Manila, which will serve as quarantine facilities for Covid-19 patients.
THE Philippine economy may lose around P1.1 trillion due to the coronavirus 2019 (Covid-19) pandemic, according to the National Economic and Development Authority (Neda).

In an online briefing with the Foreign Correspondents Association of the Philippines on Thursday, Socioeconomic Planning Secretary Karl Kendrick T. Chua told reporters this estimate assumes that GDP growth will be zero this year.

Chua also took into consideration the revised and rebased estimates for GDP released by the Philippine Statistics Authority (PSA), which pegged GDP at around P18.6 trillion in 2019.

“Those are the numbers that I am translating for you based on the pronouncement that GDP will be flat and so far the survey seems to say that is not very far off because the survey says around P700 billion in losses, according to the people we interviewed,” Chua said.

Optimism on the country’s GDP growth numbers have been running low and Chua said it would not be a surprise if GDP growth in the first quarter will not come out as well as hoped.

3 factors

Chua said the economy was hit hard by three exogenous factors in the first three months of the year that may have undermined the country’s growth prospects.

These factors are the Taal Volcano eruption; the decline in Chinese tourist arrivals and trade which also affected the local tourism industry and trade sector; and the imposition of the enhanced community quarantine (ECQ) in March.

The PSA is set to release the official first-quarter GDP growth estimates on May 7.

“I’m new here but my sense is that we have a good potential to see a positive growth. [But] we shouldn’t be surprised if the numbers are not to our best favor,” Chua said.

Apart from slow growth, the pandemic will likely increase the country’s debt-to-GDP ratio to around 46 percent to 47 percent from the current 40 percent estimate.

Chua said with the lack of revenues that the government can collect in light of the ECQ, the government can resort to borrowings.

To date, the Philippine government has secured $3.733 billion worth of grants and loans from multilateral agencies, the Asian Development Bank and the World Bank.

However, Chua said any increase in debts will be manageable considering that the Philippines was already on the brink of a fiscal crisis in 2004 with a debt-to-GDP ratio of over 80 percent; consolidated public-sector debt was over 100 percent; and the budget deficit was reaching 6 percent.

Chua said having a debt-to-GDP ratio of 41.5 percent as of last year now gives the country some fiscal space to secure low-cost loans, something that was unimaginable in the early 2000s.

“We are in a very good position to borrow because our economy is in a very good position. We have a track record and we put tax reform as our equity contribution,” Chua said.

ECQ lifting

Amid these grim expectations, the lifting of the ECQ in some areas will help boost the economy. Several provinces are expected to enter the general community quarantine (GCQ) phase starting Friday, May 1.

Chua said with 75 percent of economic activities returning to normal under GCQ, the economy still has a prayer for positive GDP growth this year. He said economic activities, provided they follow basic healthcare protocols, will be allowed and be able to give the economy a much needed boost.

The Neda chief said being prudent with the lifting of the ECQ is one of the ways the economic team and the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF-EID) will ensure a sustained economic recovery.

“We already know from other countries that too hasty a decision without the necessary preparation can lead to a second or a third wave. And that’s worse, actually. We would like to prepare better and recover and sustain that. We don’t want a recovery followed by a sudden collapse again,” Chua said.

New hope

Chua said one of the possible growth drivers of the economy in post-Covid-19 Philippines would be the agriculture sector.

He earlier explained that all activities linked to the agriculture sector and food production as well as delivery are allowed, even under the ECQ.

As such, the government is able to ensure that the country has sufficient food supply during lockdown and allow the agriculture sector’s growth to see some much-needed improvement.

The government, he said, also has tools in its arsenal to support farmers such as the Land Bank of the Philippines and programs such as SureAID and the Rice Competitiveness Enhancement Fund (RCEF).

Chua said, however, what is needed is to increase the productivity of the sector. For years, the agriculture sector barely grew 2 percent, the country’s average population growth rate.

“Agriculture growth hardly exceeded population growth in the past years. So that suggests we cannot even feed our own people if we cannot grow by at least 2 percent every year,” Chua said.

“We are going to put a lot of effort into improving agriculture and this requires what we actually did in the case of rice. We opened up the sector but we put a lot of money to mechanize, to get the high-yielding seeds, and all the support so that once and for all, we make agriculture very productive,” he explained.

Meanwhile, Chua also reiterated that the Build, Build, Build program will also be accelerated once the government can ensure that workers can safely continue with these projects.

Chua said the BBB program remains one of the government’s key strategies to recover from the economic losses brought by the pandemic.

After establishing the “new normal,” Chua said, the government will prioritize which projects would have the most impact on the economy and fast-track these projects.

The BBB program can also help returning overseas Filipino workers (OFWs) gain employment. Chua admitted that the country was in short supply of quality workers in the construction sector and OFWs would be able to fill this gap if they chose to stay in the country.

Nonetheless, Chua is confident that with the excellent brand of service that Filipino workers have established globally, many OFWs will be able to return abroad.

Earlier, in an Ateneo de Manila University (ADMU) Policy Brief, Ateneo Center for Economic Research and Development (ACERD) Director Alvin P. Ang and Institute for Migration and Development Issues (IMDI) Executive Director Jeremaiah M. Opiniano estimated around 300,000 to 400,000 OFWs will be laid off or suffer pay cuts due to the pandemic.

Ang and Opiniano said this will likely cut the remittances from OFWs by 10 to 20 percent or as much as $3 billion to $6 billion, “the steepest decline in remittances in Philippine migration history.” This means remittances could only reach $24 billion to $27 billion this year from $30 billion in 2019.

“These base-to-worst case scenario are significant numbers hitting the economy externally and then internally. With overseas Filipinos’ remittances fuelling national consumption, we can lose 20 percent to 40 percent of consumption due to the pass-through effect of remittances,” Ang and Opiniano said.

The Covid-19-induced lockdowns and work stoppage have put global economies in limbo. Multilateral institutions as well as international and local think tanks have painted a grim picture for global GDP growth this year.

On March 17, President Duterte imposed an enhanced community quarantine (ECQ) on the entire island of Luzon where the National Capital Region, Calabarzon and Central Luzon regions are located. The three regions account for 60 percent of the country’s GDP. The month-long Luzon ECQ was extended to April 30; and once again, to May 15, but this time for Metro Manila and nine other areas in Luzon, the Visayas and Mindanao deemed at high risk of infections.

The government is also expecting the return of thousands of OFWs due to the work stoppage, particularly among cruise ships and ocean liners, due to Covid-19.

Ang and Opiniano said another concern when it comes to the plight of OFWs is the decline in oil prices. They estimate that if the current trend continues, more Filipinos in the oil-rich Middle East will be out of jobs or suffer pay cuts.