Plunging the economy into deeper crisis

The extended enhanced community quarantine or lockdown in Luzon and other parts of the Philippines is killing the country. Another extension could be a bad step that could plunge us into an economic crisis that may take years to recover from.

The government had declared a war chest of P600 billion, of which P290 billion will be used for programs to soften the economic impact on affected people and businesses and buttress the country’s health delivery system.

The amount, of course, does not include the potentially bigger cost to the economy, which a study issued by the National Economic and Development Authority (NEDA) in the last week of March estimated a contraction of the gross domestic product (GDP) of between 2.1 percent to 6.6 percent this year.

NEDA estimated this amount to be a loss of between P428.7 billion to P1.355.6 trillion in gross value added (GVA), with 116,000 to 1.8 million jobs lost, and foregone remittances of about P5.7 billion from overseas working Filipinos whose jobs may be affected by the global pandemic-caused lockdowns.

Note that this report came out before the quarantine was extended by two more weeks to April 30. The report warned that if the quarantine is extended beyond one month, then the loss would even be higher.

Big risks

We are a country with no deep pockets, still being a fledging economy that’s barely trying to keep afloat in a region of high growth potential, but with many other countries desperately trying to break through their own economic malaise.

The Philippines’ uninterrupted economic growth over the last decades has apparently not given us a sturdy shield we can use against the widespread devastation that the coronavirus has whiplashed even the staunchest economies of the world.

The risk of the global economy going into a recession that is even comparable to the Great Depression weighs heavy on developing economies like the Philippines whose external debt and budget deficits need to be closely watched.

With the push by the current administration to finance an ambitious P8.7-trillion infrastructure program over six years, significant debt has been – and continues to accumulate. Now, with the coronavirus crisis, the government plans to increase borrowings to between P400 billion to P450 billion to augment the P290 billion it has realigned from this year’s budget.

NEDA has been reminding the economic team to keep the budget gap to a manageable level, and from not widening the fiscal deficit to GDP ratio beyond five percent, but this will likely be impossible given the fiscal strains arising from the government’s response to the coronavirus infection.

Former Socioeconomic Planning Secretary Ernesto M. Pernia may have been spooked by the looming reality of fiscal collapse caused by another quarantine extension.

While the Philippines is currently in a healthier fiscal position because of new taxes today compared to 16 years ago in 2004 when the accumulated public sector debt rose to 130 percent of GDP, a third of which was in foreign currency, a high debt to GDP ratio today when the world economy is collapsing can be lethal.

Testing alone not enough

The coronavirus spread in the country where over 400 Filipinos have already died, and which is now going into its 90th day from the time the first case was documented, has been receiving increased attention in international and regional news for its continued escalation.

Despite being one of the first countries in the region to impose a lockdown when there was just a handful of reported cases, contamination continues to spread, and is now nearing the 7,000 mark.

While the government says that the epidemic has already peaked, this has not been well received because of the lack of testing data resulting from the late adoption in communities where infections are being monitored. Similarly, isolation and contact tracing continue to be haphazardly done.

With testing starting to gain traction, we may be able to know the real extent of infection spread. But isolation and tracing have to be done in a more systematic way, and until then, testing alone will not stop the epidemic.

Looking for a hero

Today, Filipinos are looking for a hero who can save lives. Lives will be lost not just due to contagion, but more so with the economy plunging deeper into crisis.

So much time is being wasted. The damage is building up, and could be difficult to reverse in the coming years. Clearly, this is not the kind of hero that would go down well in history.

Facebook and Twitter

We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us on www.facebook.com/ReyGamboa and follow us on www.twitter.com/ReyGamboa.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.