COVID-19 vaccine uncertainty tempers PH growth goal for 2021

by Ben O. de Vera, 7 Aug 2020

MANILA, Philippines — Without a vaccine yet to prevent COVID-19’s spread, President Duterte’s economic managers have tempered growth expectations for next year despite recovery from this year’s recession.

The Cabinet-level Development Budget Coordination Committee (DBCC) last July 28 approved via ad referendum their projection that real gross domestic product (GDP) will contract between 4.4 percent and 6.6 percent — or an average of 5.5 percent — this year.

In the first half, the economy shrank by an average of 9 percent as second-quarter GDP fell by a record 16.5 percent year-on-year and brought about a technical recession.

For 2021, GDP was projected to rebound by growing 6.5-7.5 percent, although slower than the DBCC’s estimate last May of a stronger 8-9 percent economic expansion.

Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua, the country’s chief economist, explained to the Inquirer that the slower growth range projection for next year was approved “to adjust to the emerging consensus that the virus will stay longer and the vaccine longer to develop.”

“The pandemic is assumed to last longer than we earlier thought — not until September only; could extend to the end of 2020 when vaccines are thought to become available,” Department of Finance (DOF) Undersecretary and chief economist Gil S. Beltran told the Inquirer separately.

“Recession in 2020 is deeper so that recovery would take longer,” Beltran added.

Finance Secretary Carlos G. Dominguez III during Security Bank’s online economic forum last Thursday expressed optimism that a vaccine “can bring a definitive end to this crisis.”

“Countries that are leading in the funding and development of these potential vaccines have committed to give the Philippines priority in purchasing doses once these are approved,” Dominguez said.

“The government, for its part, has adequate funds to purchase the vaccines. But for now, since we don’t have the vaccine yet, we treat infections and find ways to co-exist with the virus,” Dominguez added.

Last week, Dominguez said the government can afford to purchase COVID-19 vaccines and provide them for free to the poor through loans to be extended by two well-capitalized state-run banks.

Dominguez had explained that their plan was for state-run Philippine International Trading Corp. (PITC) to purchase the COVID-19 vaccines to be approved by the DOH’s Food and Drug Administration (FDA), through a term loan from the Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP).

“PITC will sell the vaccines to the DOH. The DOH will pay PITC over time from their future allocations from the national budget,” Dominguez had said.

Referring to Landbank and DBP, Dominguez had said that “the current balance sheets of both GFIs [government financial institutions] can support the estimated loan requirement of P20 billion.”

“Please recall that since 2016, by hardly collecting any dividends from Landbank and DBP, the national government, in effect, strengthened their capital bases. This, in turn, was made possible by the tax and administrative reforms that increased government revenues,” Dominguez had noted.

The two lenders’ cash dividends—mandated among government-owned and/or -controlled corporations (GOCCs) to be remitted to the national treasury—were being waived in recent years and instead used to recapitalize themselves.

As for those who could afford themselves a vaccine, Dominguez had said Landbank and DBP can also “fund loans to qualified borrowers who wish to supply FDA-approved vaccines on a commercial basis.”

Separately, Landbank president and chief executive Cecilia C. Borromeo told the Inquirer last week that the lender “may extend a credit facility for PITC for the purchase of necessary vaccines on behalf of the DOH, similar to what Landbank did when the national government launched the generic medicine program years ago.”

“The amount for the trade transaction credit facility will be based on the requirement of PITC, and the sharing between Landbank and DBP will logically be based on the size of the balance sheets of the GFIs and the preference of the DOF,” according to Borromeo, whose Landbank is bigger than DBP.

/MUF