18 May 2020 – Economy may take longer to bounce back

by Lawrence Agcaoili (The Philippine Star), 18 May 2020

MANILA, Philippines — The Philippines is facing a prolonged U or W-shaped recovery as the economy is expected to shrink by up to seven percent this year due to the coronavirus disease 2019 or COVID-19 pandemic, according to New York-based think tank Global Source Partners Inc.

Former finance undersecretary and analyst at Global Source Romeo Bernardo said the think tank’s latest projection of a five to seven percent drop in gross domestic product (GDP) is worse than the Development Budget Coordination Committee (DBCC)’s forecast of a two to 3.4 percent GDP contraction.

“Nevertheless, our experience so far suggests to me that the more likely recovery will be a long U or W than a V,” he said.

Economic managers are expecting a V-shaped recovery with a growth expected to settle at 7.1 to 8.1 percent next year.

The economy last contracted by 0.5 percent in 1998 during the height of the Asian financial crisis. The GDP declined by 0.2 percent in the first quarter, ending 84 straight quarters of expansion since the three percent contraction recorded in the fourth quarter of 1998.

In a report titled “Managing the fallout from the COVID-19 crisis,” Bernardo said the government is now crafting its economic recovery program in consultation with the private sector.

Bernardo agrees with Socioeconomic Planning Secretary Karl Chua that the Philippines is better situated than many emerging countries to cope with the crisis from the coronavirus pandemic given the country’s stronger macroeconomic fundamentals.

“However, this plague has changed the game radically. It would not be an exaggeration to call this the existential challenge of this generation, not just for the Philippines, but globally,” he said.

While the Philippines has weathered the 1997 Asian financial crisis, the global financial crisis in 2008 as well as the political crisis of the mid 80’s, Bernardo said the pandemic is arguably more fearsome.

He cited the continuing uncertainties about the evolution of the virus, its spread and how long it will take for a cure or a vaccine to be developed as well as the characteristics of the Philippines, including the high density in Metro Manila in particular the large number of slum communities, the most congested public transport system, the large numbers working in the informal sector.

“Government needs to play a key role in the survival, and later on, revival of the economy. Only government has the balance sheet, the fiscal headroom, the huge reserves, and the access to international financial markets,” he said.

Bernardo also lauded the government decision to further raise the budget deficit cap to 8.1 percent of GDP instead of only 5.3 percent after taking into account both the new spending and drop in revenues.

“This is sustainable and should not hurt credit ratings provided messaging is clear that this is temporary with clear path to fiscal sustainability. Besides, most other countries’ fiscal deficit numbers will likewise crater and credit rating agencies will rate taking performance of other comparator sovereigns into account,” Bernardo said.

Bernardo is pushing for more medium term reforms including more flexibility in labor laws as unemployment grows with the return of overseas Filipino workers and loss of jobs, agricultural reforms and creating green jobs, more reliance on public private partnership (PPP) for infrastructure projects, lifting of mining moratorium as well as prioritization of the Public Securities Act, Foreign Investment Act, and Retail Trade Act to attract foreign direct investments.