DOF: Economic recovery depends on government capacity to manage risks

MANILA, Philippines — The country’s path to economic recovery would depend largely on its ability to battle the coronavirus disease 2019 (COVID-19), which could be made even more challenging with the onset of the rainy season, the Department of Finance (DOF) said yesterday.

In his latest economic bulletin, Finance Undersecretary and chief economist Gil Beltran said restoring the Philippine economy’s growth would hinge on the country’s capacity to manage the health risks posed by the virus.

“Such capacity could tilt the odds in what is apparently a life-versus-livelihood dilemma and make it more of a life-and-livelihood dual outcome, but probably at a lesser scale than before under a ‘new normal’ should there still be uncertainties about the virus,” he said.

However, Beltran said the onset of the rainy season could make the country’s battle against the pandemic more challenging.

“The flu season would have started and flooding could occur in low-lying areas. Distancing in temporary relocation sites could be difficult to implement,” the DOF official said.

Beltran, meanwhile, noted that the Philippines has various programs and measures to help the economy recuperate from the damaging effects of the COVID-19 crisis, much like it did after the global financial crisis.

“In the aftermath of the global financial crisis, the Philippines launched the P330-billion Economic Resiliency Plan (ERP) of 2009 in a bid to reboot the economy. Said program is comprised of, among others, increased infrastructure spending, lower corporate income tax rate of 30 percent, and additional funding for social protection of vulnerable groups,” Beltran said.

“Currently, the country has an ongoing massive infrastructure program and a bill aimed at making corporate taxation more competitive vis-à-vis peers in the region and more attuned to the needs of the time,” he added, referring to the Build Build Build program and the Corporate Income Tax and Incentives Rationalization Act.

The Philippine economy contracted by 0.2 percent in the first quarter of 2020, shrinking for the first time the economy registered negative growth since the fourth quarter of 1998.

“From the expenditure side, investments slumped by more than 18 percent, exports declined by three percent, and consumption slowed down by 0.17 percent,” Beltran said.

“The decline in overall construction expenditures and investments in durable equipment knocked 1.1 percentage points off the growth rate. Government consumption, meanwhile, grew by more than seven percent, contributing 0.84 percentage point to GDP growth,” he added.

On the other hand, Beltran said all sub-sectors in the supply side declined, with the exception of utilities and social services.

“Growth in agriculture and industry turned negative to 0.4 percent and three percent, respectively, while that of services sharply decelerated to 1.4 percent. As expected, tourism-related activities, such as hotels and restaurants and transportation were among the most adversely affected by the community quarantine,” Beltran said.

Earlier, Finance Secretary Carlos Dominguez said the country’s gross domestic product (GDP) figures may sink deeper in the second quarter before bouncing back in the second half of the year, on the back of plans to accelerate public spending on infrastructure and social programs, as well as other measures to restore consumer confidence and stimulate economic activity.

However, the finance chief said economic improvement and the government’s bounce back plan would be contingent on whether the curve has been flattened and an effective cure or vaccine has been released by then.