Late last month, credit watchdog S&P Global Ratings forecasted Philippine gross domestic product (GDP) to contract by three percent this year due to the COVID-19 pandemic and the measures required to contain it.
Similarly, the government’s Development Budget Coordinating Committee (DBCC) expects GDP to contract between two and 3.4 percent this year, compared to its six percent growth in 2019.
The last time Philippine GDP contracted was in 1998, when it went down by 0.5 percent due to the Asian financial crisis.
In the first quarter of the year, GDP shrank by 0.2 percent, ending 84 straight quarters of economic growth.
The COVID-19 virus has hit the country very hard, both economically and socially. It is a national desire to get back on track, to get the economy running again, to as much as possible, get life back to what it was before the virus and the lockdowns.
However, it is simply no longer possible to do so. There are certain realities that have to be recognized.
The first thing to acknowledge is that COVID-19 is, unfortunately, here to stay. It will not be like a storm that blows over.
The second is that though the prospects of developing a vaccine in the near future are bright, there is no certainty how effective it will be and how long before the majority of the population can get it. Dr. Anthony Fauci, the director of the US National Institute of Allergy and Infectious Diseases, said “The first thing we want to do is determine if it’s safe and if it protects… how long that protection lasts… we’re going to have to obviously observe that and that’s the reason why when you make a vaccine it isn’t the end of the game.”
The third reality is that though we definitely cannot have our economy recover by having the population stay and work from home, it is also a truism that you cannot just let the entire economy open fully immediately. The US experience shows that. A recent Reuters news report stated that though the American economy created jobs at a record rate in June due to the reopening of many establishments, the resurgence in COVID-19 cases would probably result in a setback this month. The rise in infections has caused several local governments in the US to pause or scale back reopenings.
To get on the road to Philippine economic recovery, we must first and foremost protect our health. As the country continues to ease on the community quarantine measures, the Department of Health has asked the public to continue practicing general preventive measures to prevent transmission of the COVID-19 virus. There can be no economic recovery if the rate of virus transmission increases, causing more sickness and deaths.
To get the economy going, the government will have to play a major role. The basic prescription as to what a government should do during a recession is to pump-prime the economy, usually through increased government spending, interest rate cuts and tax reduction.
The government has been giving considerable assistance directly to the citizenry since the lockdowns. However, this type of spending is a temporary relief measure and is not a measure that can revive the economy. Government spending in infrastructure, agriculture, transportation and similar projects that have a high multiplier effect would be the most effective. The government’s move to restart the “Build, Build, Build” program and its support for businesses in food production and its entire value chain, among other, are steps in the right direction.
The Bangko Sentral ng Pilipinas has been doing its share to mitigate the effects of the pandemic on the economy and help in its recovery by bringing down interest rates. Late last month, it lowered the overnight reverse repurchase rate by another 50 basis points, down to 2.25 percent from 2.75 percent, bringing borrowing costs to its lowest so far this year.
Though measures to bring down certain taxes are in the works, the tax cuts should be significant and immediately implemented to truly help the citizenry and the economy recover quickly.
Beyond the mentioned pump-priming measures, an effective stimulant for economic recovery would be a business-friendly environment wherein red tape and corruption are at a minimum. This will encourage both foreign and domestic investment. Though the Anti-Red Tape Authority and the Presidential Anti-Corruption Commission are doing their best to provide this environment, the problems in these areas are so huge that it will need a “whole-of-government” approach driven immediately and relentlessly from the top to solve them.
The private sector for its part, though bound by health and government restrictions, will on its own move for economic survival, recovery and ultimately, growth. However, given the present business realities from COVID-19 that will extend into the future, it should innovate and learn to operate, produce, sell and profit in the “new normal.” As there are products, services and ways of doing things that can no longer exist in this era, there are the new goods, services and processes that will have to be used now and in the future. There will be new consumer needs and opportunities that businesses can meet and profit from.
The pandemic has also brought back the importance of our agriculture and aquatic resources. We need such for physical survival, economic recovery and growth.
Economic recovery will likewise necessitate not only the continuation of the education of our youth who will form the workforce of tomorrow, but more importantly, the adjustment of the educational system and the content of learnings to a post-COVID-19 world.
The road to economic recovery will not be easy, but given the resiliency, perseverance and ingenuity of the Filipino, it is a road we can successfully traverse.