By Beatrice M. Laforga
THE Philippine economy could contract by as much as 0.6% this year due to the widening fallout from the coronavirus disease 2019 (COVID-19) pandemic, according to the National Economic and Development Authority (NEDA).
In a report titled “Addressing the Social and Economic Impact of the COVID-19 Pandemic,” NEDA said economic drivers such as tourism, trade, remittances and consumption are being hurt amid the month-long Luzon-wide lockdown.
“Without mitigating measures, this would imply a reduction in the Philippine’s real GDP (gross domestic product) growth to -0.6% to 4.3% in 2020. The government’s swift and appropriate response remains crucial in the softening the blow of COVID-19, particularly on the most vulnerable members of our society,” the NEDA said.
NEDA noted that attaining the higher-end of the forecast range is possible only “if we are able to stem the impact of COVID-19 and the enhanced community quarantine (ECQ) to the rest of the economy.”
“(If) the ECQ is extended beyond one month, or if the spread of COVID-19 is unabated even after the ECQ, then even the low-end of the estimate is still too high,” it added.
If the low-end of the estimate is attained, 2020 would mark the first contraction of the Philippine economy since the -0.6% recorded in 1998.
The government has yet to revise the 6.5-7.5% GDP growth targets for this year. The economy grew by 5.9% in 2019.
As of Tuesday afternoon, the Philippines had 552 coronavirus infections, with 35 deaths.
For the first quarter, Socioeconomic Planning Secretary Ernesto M. Pernia told BusinessWorld the economy could still expand by five percent despite the disruption caused by the Taal Volcano’s eruption in late January and the ongoing COVID-19 pandemic.
Mr. Pernia said growth drivers for this quarter will likely come from the government’s “Build, Build, Build” program, recovery spending for Taal, as well as pickup in public consumption due to low inflation, prior to the lockdown.
The NEDA study also showed the country stands to lose between P428.7 billion to P1.355.6 trillion in gross value added (GVA) or equivalent to 2.1%-6.6% of its gross domestic product (GDP) this year, “given the simultaneous adverse effects on the supply and demand side of the economy.”
Around 116,000 to 1.8 million jobs are expected to be lost, NEDA said,
The economic planning office estimates the month-long ECQ in Luzon could result in P298 billion to P1.086 trillion in foregone GVA, accounting for 1.5%-5.3% of GDP. Luzon accounts for 73% of GDP.
The transport and tourism industry will suffer the most, with projected GVA losses of P77.5 billion due to the widespread travel bans. Around 33,800 to 56,000 jobs in the industry will be shed.
“Household consumption is expected to decelerate until June as consumer confidence dips due to health concerns and social distancing measures. In particular, a 5% to 10% decline in household consumption of non-essential commodities,” NEDA said, noting this will result in P45.1 to P93.6 billion in foregone GVA.
The exports sector is projected to lose between P4.9 to P9.8 billion in GVA, if the Philippines’ top 10 exports dependent on China and three consumer products dependent on Hong Kong fell for one month at rates ranging from 11% to 100%). Job losses in this sector may rise to as much as 6,700. China is the country’s single largest trading partner, making up a fifth of the country’s total trade.
Remittances will also take a hit, as some overseas Filipino workers (OFWs) are expected to be laid off due to the global downturn.
“If 30% of OFWs employed in tourism and tourism-related services lose their jobs (around 100,000 employees) as demand in the tourism sector plummets worldwide for five months, we expect to lose approximately P5.7 billion in foregone remittances,” NEDA said, noting this will result in GVA losses of between P3.9 to P8.5 billion.
NEDA said the estimates are based on the assumption that the adverse impact will be felt until June, although the biggest impact will be seen during the ECQ that is scheduled to end on April 12.
“External trade, however, is expected to recover beginning March, though will still be affected by the ECQ,” it said.
DEFICIT TO WIDEN
According to the NEDA report, the government’s budget deficit could balloon to 4.4% to 5.4% of GDP this year.
“Aggressive efforts to contain COVID-19, including the Luzon-wide quarantine, could by itself add pressure on the country’s fiscal position. Even without additional spending, the estimated decline in GDP (2.1% to 6.6%) can increase the national government budget deficit to 4.4-5.4% of GDP in 2020, assuming the same revenue effort,” NEDA said.
The government also breached its 3.2% budget gap limit last year, after the fiscal deficit widened to a record P660.2 billion in 2019 or 3.55% of GDP, largely from the P494.4 billion last-minute spending surge seen in December.
However, Mr. Pernia, warned the government should be cautious in widening the fiscal deficit to GDP ratio past the five percent level to avoid repeating the fiscal crisis in 2004 which he said will be a “very difficult to recover from.”
This, as the government plans more than P200 billion in additional fiscal stimulus to contain the outbreak while supporting the economy.
“We just have to watch the fiscal picture because we don’t want a repeat of the 2004 fiscal crisis, ballooning budget deficit as well as ballooning debt. That’s going to be bad for the economy, it’s very difficult to recover from such a situation like what we had in 2004. In 2004, our budget deficit was upwards of 5% of GDP and the external debt exceeded 75% of GDP, and we had fiscal crisis then and it was difficult to recover from that situation,” Mr. Pernia told ANC in an interview on Tuesday.
State budget planners set a 3.2% limit on fiscal deficit to GDP ratio for this year until 2022. However, economic managers earlier said the limit could be breached amid higher government spending and could reach to 3.6% of GDP.
The government has rolled out its initial P27.1 billion economic stimulus package to help affected sectors, while Congress has approved a measure that will allow the President to realign savings from the 2020 budgets of agencies under the Executive branch.
“The response measures going forward should be re-configured to delicately balance the health and economic objectives, particularly as the impact varies by economic class. Otherwise, the situation could deteriorate to a social and political crisis,” NEDA said.
NEDA noted that widespread testing for coronavirus is the “key to a successful medical response.”
“A patient who is diagnosed earlier could be given care to prevent secondary infections. Moreover, early diagnosis will lead to early initiation of quarantine procedures and, therefore, limit or prevent the spread of the virus,” it said.
For the health sector, it said the government could build makeshift consultation facilities, set up health surveillance systems and provide financing to manufacturers that produces much-needed supplies such as personal protective equipment (PPE).
To mitigate the impact of the lockdown, NEDA said the government could provide regulatory relief through emergency funds or loans and amelioration funds to the travel and tourism sector as well as other affected businesses.