EMERGING MARKETS in Southeast Asia are deemed “high risk” during the COVID-19 (coronavirus disease 2019) outbreak due to the concentration of populations in urban areas, weak health care systems and flawed quarantine protocols, think tank Capital Economics said.

“Extremely dense populations in urban areas, poor health care provision and limited ability to impose quarantine measures mean that countries in South and Southeast Asia, as well as Egypt and Nigeria, look highly exposed to a large-scale coronavirus outbreak,” Capital Economics said in its Emerging Markets Economics note published Thursday.

While emerging countries have reported relatively low infection levels, the think tank attributed this to warmer climates and limited testing, adding that the actual number of cases “is almost certainly higher.

It said the state of a health care system is a key factor in early detection but noted that health care spending relative to gross domestic product (GDP) is “extremely low in Nigeria, South Asia and South-East Asia, and not much higher in Turkey or Egypt.”

According to World Bank data, health care spending in the Philippines accounted for 4.39% of GDP in 2016, compared to the world average of 10.02%.

“Another determinant is the density of the population in urban areas. Based on this, much of South and South-East Asia looks vulnerable. Ten of the 15 most-densely populated cities in the world are in these regions — and five of those are in India alone. There are vulnerabilities in other major EMs too,” the think tank said.

It said that strict quarantine policies “are less likely to be successfully” implemented in many emerging markets “due to weak governance, poor housing, and large informal sectors.

“The economic effects of containment measures will depend both on the decisions by consumers and firms, and the relative size of sectors vulnerable to social distancing,” it said.

Following the 30-day lockdown in Luzon island which accounts for around 70% of Philippine GDP, Capital Economics said in its note that “consumption, the main driver of the economy, is set to slump.”

“These measures will probably be extended to the whole country soon and it seems likely they will remain in place in some form for at least the next couple of months,” it said in the note, issued Thursday.

It added that the tourism sector “is set to worsen” as travel cross the globe “is grinding to a halt.”

Separately, Moody’s Investors Service said “substantial policy buffers” by governments are needed to mitigate the potential credit-negative impact of the economic slowdown as countries in the Asia Pacific region braces for intensified outbreak.

Meanwhile, Moody’s Investors Service said the Philippines has fiscal space to soften the blow of economic fallout arising from the pandemic but this is not enough to fully offset the adverse impact.

Christian de Guzman, senior vice-president at the Moody’s Sovereign Risk Group, said the fiscal space was built up mainly from economic reforms implemented in recent years.

“Although we believe that the Philippines has fiscal space to mitigate the economic fallout of the coronavirus outbreak — in part due to the reforms passed over the past few years, including those related to taxes, and only moderate levels of public debt — it is unlikely that any economy globally can fully offset the full brunt of the damage,” Mr. de Guzman said in an e-mail in response to a request for comment.

The national government’s outstanding debt hit P7.731 trillion in 2019, equivalent to 41.5% of GDP, the lowest level since 1986. The equivalent ratio was 41.8% in 2018.

The government on Monday announced a P27.1 billion economic stimulus package to offset the COVID-19 slowdown.

Moodys’ has reduced its 2020 gross domestic product growth forecast for the Philippines to 5.4% from its 6.1% projection issued. Last year, its estimate was 6.2%.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said: “Everything is very fluid and uncertain at this point,” adding that counting on the ratings agencies not to downgrade “is like trying to build a house on sand.”

“However, if one looks at the facts and numbers (the macroeconomic fundamentals), yes, indeed, there is fiscal space and debt levels were trending downwards. We can probably get an outlook downgrade but not a specific downgrade at this juncture,” Mr. Asuncion added in a Viber message. — Beatrice M. Laforga