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We agree with the managing director of the IMF, Kristalina Georgieva. He noted that some emerging countries like India, Brazil, Argentina, Iraq and, yes, the Philippines, “are dealing with a large number of cases that cloud the short-term economic outlook.”
One of the final notes of the recent online annual meeting of the World Bank Group and the IMF, the recovery prospects within this group are very mixed. This is in contrast to China and Vietnam, which managed to contain the virus, avoid recession this year and set a clear path for rapid growth in 2021 of at least 7%.
It is ironic that the Philippines is trying to do everything it can to address the pandemic and cushion its economic damage. The government has made serious efforts to slow transmission, support job and income losses, and reallocate resources away from contact-intensive sectors.
Despite this, President Duterte’s chief economic officer, Finance Secretary Sonny Dominguez, admitted that this year’s recession would likely be deeper due to the re-imposition of strict closures in Metro Manila and some provinces in August. The Secretary’s estimate is about 6% lower than the initial forecasts. The Fund projects an even lower economic contraction of 8.3% this year due to continued weakness in consumer confidence and private investments.
We expect Washington to be wrong in this last October forecast of the country’s growth outlook, the third, which is well below the average for emerging and developing markets with a negative 3.3%.
The Fund highlighted an important need.
A “reassessment of spending priorities” is of great urgency for highly infected countries.
Do you need to reassess spending priorities in the Philippines?
In our column in another article, we wrote that inadequate public spending qualifies as a public governance deficit. In three days of a special session after resolving its controversy over the speaker, Congress approved the 2021 budget amounting to P4.506 trillion. The tireless representative of Bicol, Joey Salceda, was quoted as saying: “We will work on the New Deal for the New Economy, to invigorate the economy, revitalize trade and investment, recover and exceed our achievements in human development and spread growth and employment in the field. . “
Perhaps, in Senate deliberation, attention could also be drawn to criticism from the minority group in Congress that public spending appears unbalanced in next year’s budget. The representative of Bayan Muna, Carlos Zárate, highlighted that of P1.1 billion for infrastructure, only P2.3 billion or 0.21% was allocated to the construction of hospitals and health centers. Compare this to the allocation to the National Task Force to End the Local Communist Armed Conflict of a staggering P19.1 billion. The pandemic is a national emergency that demands swift and substantial action. But we cannot deny that the problem of left armed struggle has been with us even before the formation of the New People’s Army in 1969.
How can the 2021 budget cover the enormous cost to the homeless among us infected and hospitalized by COVID-19? Smear tests must be paid for by the individuals themselves. Hospital bills can range from half a million to more than a million pesos depending on the procedures. It’s no wonder that in Dr. Vic Abola’s recent “Light and Shadow” presentation on the winners of the pandemic, IT and telecommunications companies, Dr. Bernie Villegas added health and wellness products and services. This is a clear case of a public governance deficit financed by civil society.
Setting aside funds for COVID-19 vaccines seems sensible but inconsistent over time. Suppose vaccines are available beyond 2021 while the virus remains relentless, continuing its rise? Of course, let’s allot some amount for vaccines, but let it be rationalized. We cannot vaccinate all 108 million Filipinos at once. But containment measures must be prioritized and strengthened so that the need for vaccines is not as urgent as preventing more deaths. The narratives of countries that managed to reduce their infection and mortality rates should be useful to our legislators.
Basic public access to hygiene facilities is out of reach for some seven million Filipinos according to 2019 data from the Department of Health. They cannot wash their hands because soap and water are not available. Our exhortation to wash your hands, wear masks and face shields is nonsense. There is a high level of awareness, but the poor cannot afford these health protocols. Avoiding crowded places is also Greek for them because their housing units are small and cramped.
What is saddening is that the budget, approved by Congress, according to Senate hog hunter Senator Ping Lacson, continues to be amended by a small group in Congress. He discovered a pattern of downsizing national infrastructure projects in favor of local infrastructure projects “which were apparently driven by congressmen.” Lacson cited Article VI, Section 26 of the Constitution warning his counterparts that no amendments will be allowed even for errors after the budget has passed.
This is what worried the Fund.
There are other proposals that would define our recovery momentum.
First is the global dynamics of the virus. Last week, in one day, more than 400,000 people were infected. This has brought the global incidence to 40 million with more than one million deaths. Ten million raises take less time today than before. With the onset of winter, Europe is once again the epicenter and more blockades are expected. Once the effects spread to trade and investment, the outlook for many emerging markets, including the Philippines, will be bleak. We will see the impact on overseas cash remittances, which fell by almost 3% in January-August 2020. As the ANZ Bank recently noted, there is limited scope to offset the impact of the global pandemic on remittances. In fact, about 10% of our overseas workers have returned and more are expected. Our old reliable mitigant for the trade deficit is being undermined by the virus.
The second is trust. While the Government acted swiftly on monetary and fiscal measures to cushion the impact of the pandemic on both employment and health, we cannot say this with great compliment to our health authorities. We are now in the seventh month of the pandemic and only recently were we able to afford to ease the lockdown a bit. The worrying thing is when we start to enter the second and third waves. Flattening the curve is critical to restoring the confidence of both consumers and investors.
A common theme in many webinars during the last annual meeting of the Fund and the World Bank was the need for sustained political support to motivate business activities. This costs money. While Fitch raised the possibility of the Philippines increasing its debt because revenues are weak, we are not overly concerned. The pandemic imposes on us an excess of taxation and greater indebtedness. We must bite the bullet, but only after ensuring that public spending goes to promoting jobs and health. Treasurer Leah de Leon should, of course, get the money from the capital markets with such liquidity and at the lowest rate in decades. If we could reverse this and produce even a small growth in excess of 2-3% of today’s market rates, the Republic should still be in the lead.
There are other spoilers. The Philhealth scandal is the most insensitive portrayal of bad government in the Philippines, especially today. We have the ‘pills’ that take bribes, according to Senator Risa Hontiveros of the Immigration Office that have practically’ rolled out the red carpet for the ‘online gambling industry and cross-border trafficking of women.’ The aforementioned Commission 2019 The audit report on the execution of public works projects does not inspire the confidence of the public. Delayed and unimplemented projects worth P101 billion violated procurement law. In 2018, the amount was more staggering at P118 billion. Some projects were not even started. Can we expect something positive from the investigations of these scandals?
During this crisis, the main victim is trust. Undoubtedly, the uncertainty has increased and the pressures on survival have multiplied. Strong political support is essential. From a macroeconomic point of view, it is important to guarantee the availability of liquidity and credit while protecting companies and households from the economic effects of the blockade.
During the Financial Street Forum in China two days ago, BIS General Manager Agustín Carstens, a former governor of the Bank of Mexico and Minister of Finance, defended two important ideas of financial deepening and financial innovation. For him, promoting long-term high-quality savings will help “remove the uncertainties and concerns that are holding back current consumption and support China’s efforts to rebalance its economy.”
The Philippines is no different from China, where financial deepening and the development of a good pension system can help increase local savings. A good pension system will aid long-term business endeavors and “reduce herd mentality and irrational market movements.” A robust capital market compensates the banking sector when it is in trouble.
Financial innovation and digital services, which have many adherents in the Philippines, can support the country’s payment system as they are doing now. Healthcare provision can get a tremendous boost from the digital push. Digitization can also strengthen financial literacy. This can lead to greater savings and investments.
These are some of the basic components of an exit strategy from economic stagnation. Worry is not one of them. After all, as a comedian once said, “Worry is like a rocking chair; It gives you something to do, but it never gets you anywhere. “
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