Philippines spending less on virus control
FOREIGN banks and think tanks have deemed the Philippines’ fiscal response to the Covid-19 pandemic as low compared to other countries in Southeast Asia and emerging market peers.
They see a likely need to increase taxes and defer infrastructure building to raise more funds to fight the disease.
In an April 30 report, Oxford Economics’s Gabriel Sterne included the Philippines among “under-spenders” in the fight against Covid-19.
Economies “with low vulnerabilities and low direct measures” also included Colombia, United Arab Emirates and Mexico, said Oxford Economics, based in the UK.
Oxford Economics’ estimates showed that the Philippines’ fiscal measures against the socioeconomic fallout caused by the pandemic were equivalent to about two per cent of gross domestic product (GDP).
In a separate May 1 report, Maybank Kim Eng placed Philippine direct fiscal support for the fight against Covid-19 at just 1.4 per cent of GDP.
“Fiscal responses from ASEAN governments have been unprecedented, both in terms of magnitude and speed,” said the Maybank report. “However, not all fiscal stimuli look the same.”
It added that “differences in fiscal balance sheet and selfimposed fiscal limits” caused “wide variation in the size of budget response”.
Fiscal responses have been large in Singapore (12.8 per cent of GDP) and Thailand (14 per cent), but are strikingly low in the Philippines (3.5 per cent) and Indonesia (2.8 per cent), said the report, written by Maybank analysts Chua Hak Bin, Lee Ju Ye and Linda Liu.
“Headline numbers for fiscal programmes look exceptionally large for some countries like Malaysia [17 per cent of GDP] and Thailand [14 per cent].
“But figures are flattened by loan moratoriums, government loan schemes and relaxation of pension withdrawal rules,” it said.
Not including non-budget items, it said direct fiscal support was highest in Singapore (8.1 per cent of GDP), Thailand (5.8 per cent), Vietnam (3.6 per cent) followed by Malaysia (1.9 per cent), the Philippines (1.4 per cent) and Indonesia (one per cent).
In the Philippines, bulk of direct assistance goes to households with 200 billion pesos ($4.0 billion) or 1.1 per cent of GDP earmarked for cash aid of 5,000 to 8,000 pesos for 18 million low-income households.
Support for businesses, the report noted, “is relatively small at 0.2 per cent of GDP”.
Maybank said it expected the Philippines and Indonesia to “face tighter fiscal constraints in the aftermath”.
It said the Philippines might have to defer its “Build, Build, Build” programme and increase taxes “in the next year or two”.
Deficit was seen to widen to 990 billion pesos or 5.3 per cent of GDP, “leaving little room for infrastructure investment”, said the Maybank report.
It said while the Philippine government was planning to spend more than one trillion pesos this year on construction projects, President Rodrigo Duterte had expressed willingness to drop infrastructure projects this year to free up more funds for Covid-19 response.
The Maybank report also cited an April 8 interview with Secretary of Finance Carlos G Dominguez III by US business news channel CNBC during which he said raising taxes will be done “not immediately”.
“But certainly down the road. I think maybe, in a year or two, that might be required,” Dominguez said in that interview.
Meanwhile, data compiled by Asian Development Bank (ADB) economists as of April 20 showed that the Philippines spent $154.39 (P7,797) per person in its response to the Covid-19 pandemic, the fourth smallest budget among Southeast Asian nations.
The Philippine per capita budget surpassed only that of Cambodia (at $127.39), Myanmar (at $1.33) and Laos (at $0.16).
The ADB data also showed that Singapore has the biggest per capita allocation of $7,515.16, followed by Thailand ($1,009.33), Malaysia ($990.06), Brunei ($411.87), Vietnam ($242.75), Indonesia ($213.33) and Timor Leste ($197.17).
Although the Philippines has a war chest of 834.9 billion pesos across five measures to contain the pandemic – the sixth biggest in the region – dividing the amount among an estimated 106.7 million Filipinos, which was its population as of 2018, has shrunk the per capita budget considerably.
Thailand has the biggest Covid-19 budget at $70.1 billion, followed by Indonesia’s $57.1 billion, Singapore’s $42.4 billion, Malaysia’s $31.2 billion and Vietnam’s $23.2 billion.
At the bottom of the list are Cambodia ($2.1 billion), East Timor ($250 million), Brunei Darussalam ($176.7 million), Myanmar ($71.5 million) and Laos ($1.1 million).
The ADB’s Covid-19 policy database showed that the Philippines spent its war chest on measures intended to provide liquidity, encourage credit creation by the financial sector, and directly fund households, businesses, and local governments amid the pandemic.