by Louise Maureen Simeon – The Philippine Star, 26 Dec 2021
MANILA, Philippines — Nearly two years into the pandemic and the world thought things would be better, economies would rebound, and businesses would recover.
But COVID-19 has its own way of battering countries, rich or poor.
The Philippines is no exception as it continues to reel from the severe economic impact of the pandemic, effectively erasing the gains the Duterte administration boasted over the past years.
What used to be the region’s rising tiger is now among the expected laggards in economic recovery, with scarring also seen to be one of the worst.
This year, the government reimposed not once, but twice, the strictest community quarantine measure in major economic hubs in the country, which, as expected, resulted in job and income losses.
But the economic team is more than confident that the stronger-than-expected performance in the third quarter will usher in a significantly better rebound this year and help the country return to pre-pandemic levels as early as next year.
Economic figures, however, tend to say otherwise as food prices remain expensive, jobs are still scarce, and more Filipinos unfortunately got poorer because of the pandemic.
And with a change in leadership in the next six months, a heavy burden lies on the next leader who needs to address both the health and economic scars brought about by the ongoing global crisis.
Cost of commodities crunch consumers
Filipinos faced high prices of basic commodities, particularly food and oil, as the Philippines cannot, in any way, escape the impact of the rise in global prices, being a net importer of major goods.
Inflation in the country has breached government targets all-year round, now averaging at 4.5 percent, as oil prices shoot up and pork prices remain a concern with the African swine fever still unresolved.
The high prices of commodities, in turn, reduced the purchasing power of many Filipinos, especially the poor and marginalized.
Research and advocacy group IBON Foundation said the high inflation for the whole year has been most burdensome on the poorest three-fourths of the population whose incomes were already too low even before the pandemic started.
In fact, more people sunk into poverty in the first half of 2021 and IBON executive director Sonny Africa said the increase is certainly due to the economic distress from last year’s lockdowns carrying over into 2021.
“However, relying on a low poverty threshold of just P79 per person per day, the poverty figures do not reflect perhaps 18 million other low-income and vulnerable families whose incomes collapsed and who could ill afford more expensive goods and services,” Africa told The STAR.
Assistant national statistician Wilma Guillen explained that the increase in the number of poor Filipinos is attributed to the meager growth in the overall income because of the closure of businesses during the pandemic.
She said there has been a faster increase in food inflation of the bottom 30 percent households and a decline in income among the top 70 percent.
“The increase in threshold was due to increase in the cost of basic food items, which is faster than the growth of income,” Guillen said.
Decreases were noted in cash receipts, support from abroad, transportation, storage and services, crop farming, and dividends from businesses.
Africa maintained that the government could have done so much to mitigate the impact of inflation amid widespread economic distress.
He said giving P10,000 in emergency cash transfers more than once would have prevented 3.8 million more poor Filipinos and 700,000 more families falling into deeper poverty.
“It is never too late to give struggling Filipinos the relief they need, especially because this will also have a much-needed stimulus effect on the macroeconomy,” he said.
On the other hand, Rizal Commercial Banking Corp. chief economist Michael Ricafort noted that the higher prices of major commodities are external in nature and are beyond the country’s control.
In an email, Ricafort said this was also exacerbated by disruptions in the global supply chains due to improved global economic recovery prospects with massive vaccination.
In a separate exchange, Pantheon Macroeconomics senior Asia economist Miguel Chanco echoed the same sentiment, saying that it is always going to be tough for the Philippines when global food and oil prices are rising rapidly, as the country is a net importer of both.
“For the most part, I think the government did relatively well, particularly in cushioning the blow of high food inflation. It could easily have been much worse given how much faster global food inflation was running earlier this year,” Chanco said.
“Similarly, the Bangko Sentral ng Pilipinas was right not to overreact to these pressures given the still-subdued state of domestic demand; rate hikes would have been very premature,” he said.
Socioeconomic Planning Secretary Karl Chua, for his part, said the Philippines is ending the year on track to an early recovery and that growth prospects are encouraging.
“As we collectively strive towards our 2040 vision, the poor will be at the center of our recovery and development strategy. No one will be left behind,” Chua said.
Work woes worry
Apart from food costs, Filipinos also dealt with rising joblessness, with lack of quality work still a challenge despite the reopening of the economy.
It was already proven that the return of lockdown measures is a major factor in the sharp rise in unemployment and underemployment in the country.
And while the number of unemployed Filipinos went down in October amid lesser restrictions, many are still looking for additional hours of work as quality jobs remain an issue.
Asian Development Bank senior economist Paul Vandenberg and employment specialist Helen Osborne said the pandemic just highlighted the deep and persistent structural divide in the labor market – for youth, women and informal workers.
“Pre-existing disparities among these vulnerable workers were exacerbated. In part, these groups were concentrated in the sectors hardest hit by job and work time losses, and social support was also difficult for them to access,” they said.
The experts argued that new situational inequalities brought about by the pandemic have combined with existing structural divides.
Ricafort said the further reopening of the economy toward greater normalcy would allow more local and overseas Filipino workers to restore the jobs that they lost.
“Employment could still improve as more businesses are allowed to operate at higher capacity and some restricted and hard-hit industries are eventually allowed to operate again,” he said.
On the contrary, Africa said the economic team is oblivious to the seriousness of the jobs crisis caused by the protracted lockdowns as they seem to think that merely reopening the economy will resolve the current problem.
He emphasized that further reopening could alleviate job losses in the worst hit transport, hotel and restaurant, and other service sectors but it is difficult to be confident that substantial improvements in the jobs situation are upcoming.
“There’s the problem of depressed household incomes and savings particularly amid rising prices. This has a substantial dampening effect on aggregate demand that mere reopening will not easily resolve,” Africa said.
“This will tend to drag MSME (micro, small and medium enterprises) recovery where they may not see enough reason to reopen or expand, even assuming that they had the resources to do so,” he said.
Similarly, Chanco believes that the labor market will continue to struggle in the short run, and that there will still be an oversupply of labor in the country, which will be detrimental to wage growth.
He said lingering travel restrictions globally will continue to impose fractions on potential OFWs going to work abroad, thereby contributing, if temporarily, to the pool of locally available labor.
Meanwhile, Ricafort said preparations for the May 2022 polls may boost employment opportunities amid increased government spending on the completion of various projects, especially infrastructure.
But he warned that recovery could realistically take much longer amid the potential risks posed by more contagious COVID-19 variants.
For Africa, the best way to improve labor market conditions is through a substantial fiscal stimulus program that increases consumption, spurs aggregate demand, and incentivizes MSMEs to reopen and expand.
This is on top of setting up a robust system of mass testing, contact tracing, and rational quarantining as a contingency to contain the spread of possibly more transmissible and vaccine-resistant COVID-19 variants.
Economists earlier argued whether a meaningful fiscal stimulus is necessary as experts warned about the country’s recovery pace amid a lackluster fiscal response to the pandemic.
Africa warned that if recovery drags and the labor market crisis persists, this is because government spending in the wake of the pandemic is too small and even below the pre-pandemic average.
IBON has long been advocating for substantial stimulus to relieve poor and low-income families as this will boost consumption and could initiate a virtuous spiral of growth and recovery.
But the government’s economic team has been wary of additional spending, noting that the Philippines should look at deficit spending with caution.
The government continues to provide support in terms of fiscal spending, lower taxes and monetary support through the banking system to address the needs of small businesses who have been affected.
Chua already said that no matter how much money or stimulus you give, if the economy is artificially prevented from operating, then there is no way to get out.
“Stimulus works if the economy is allowed to operate so that consumer demand can return. But if you close it and prevent half of the economy and even the children and families from going out, no matter how you pump prime them, they will not be able to fully help,” he said.
The government has allocated more than 15 percent of the economy in terms of fiscal, monetary and financial resources that are being accelerated for implementation.
These include health and social protection measures such as the first and second package of the Bayanihan, laws that will lower taxes and give more targeted, transparent and performance-based incentives, infrastructure funds, and the 2021 national budget geared toward recovery and protection from the pandemic.
Chanco, for his part said 2022 would be particularly difficult as the Philippines needs to consider consolidating its COVID-19 era budget deficit.
“It’s one of the few emerging market countries in the region that has yet to see any real consolidation, and this process cannot be delayed indefinitely,” he said.
Ricafort noted that the lack of funds for any additional stimulus measures would put greater onus on the continuation of accommodative monetary policy to do more of heavy lifting for the economy, as may be fundamentally constrained by the relatively wider budget deficits.
The country’s debt-to-GDP ratio at 63.1 percent in September is already slightly above the international threshold of 60 percent to ensure sustainability of the country’s fiscal management over the long-term.
However, Africa said a larger deficit and even more debt are justifiable because a more well-designed government spending today will ensure faster recovery, greater revenue generation, and easier debt management.
IBON estimates that there’s at least P600 billion more in fiscal space available on top of the P5-trillion 2022 budget.
“The economic managers really should give more attention to joblessness and income losses, and be less rigid about their narrowly-constructed deficit and debt targets,” Africa said.
“The optimal economic decision should not be defined by what is preferred by credit ratings agencies and creditors, but rather by what is in the interest of rapid recovery and development,” he said.
Pinning hopes on polls
It is less than a semester before the leadership changes in the country and aside from dealing with COVID-19, the new president would have to work doubly hard to ensure economic recovery and development.
Ricafort said the new administration should focus on economic recovery measures such as further reopening of the economy, creating more jobs, and improving the government’s fiscal position.
He also called for the promotion of greater inclusion among politicians and improved diplomatic relations with the biggest trading partners, sources of foreign investments.
Africa is hoping for a more progressive tax system including a modest wealth tax on billionaires, increasing personal income taxes on the wealthiest two to three percent of families, and jacking up the corporate income tax on large corporations.
He also wants the government to make national industrialization, agricultural development, and directly providing social services become the focus of economic policymaking.
Chanco, on the other hand, emphasized that the election would be huge in determining the outlook for the rest of 2022 as both investment and government spending would be on the sidelines through the first half of next year.
“I think a smooth election, regardless of the outcome, is important for the economy. We cannot take this for granted,” he said.