Reassessing priorities in troubled times
We agree with the IMF Managing Director Kristalina Georgieva. She pointed out that some emerging countries like India, Brazil, Argentina, Iraq, and, yes, the Philippines, “grapple with high caseloads that cloud the nearterm economic outlook.”
One of the endnotes of the recent online annual meeting of the IMF-World Bank Group, recovery prospects within this group are highly uneven. This is in contrast to China and Vietnam which succeeded in containing the virus, avoiding recession this year and establishing a clear path for rapid growth in 2021 of at least 7%.
It is ironic that the Philippines is trying to do everything to address the pandemic and cushion its economic harm. The Government has made the earnest efforts to slow the transmission, support jobs and income losses and reallocate resources away from contact-intensive sectors.
Despite these, President Duterte’s chief economic manager, Finance Secretary Sonny Dominguez, admitted that the recession this year would likely be deeper due to the reimposition of strict lockdowns in Metro Manila and a few provinces in August. The Secretary’s estimate is lower at about 6% compared to the initial forecasts. The Fund projects an even lower 8.3% economic contraction this year due to continuing weakness in consumer confidence and private investments.
We hope Washington is wrong in this latest October forecast of the country’s growth outlook, its third, which is way below the average for developing and emerging markets at negative 3.3%.
The Fund highlighted one important need.
Of great urgency is for countries with high infection for a “reassessment of spending priorities.”
Is there a need for reassessing spending priorities in the Philippines?
In our column in another paper, we wrote that unsound public spending qualifies as a public governance deficit. In three days of a special session after resolving its speakership controversy, Congress passed the 2021 budget amounting to P4.506 trillion. The indefatigable Bicol Rep. Joey Salceda was quoted as saying: “We will work on the New Deal for the New Economy, to energize the economy, revitalize trade and investment, regain and exceed our human development achievements and diffuse growth and employment to the countryside.”
Perhaps, in the Senate deliberation, attention could also be given to Congress’ minority group’s critique that public spending appears lopsided in next year’s budget. Bayan Muna Rep. Carlos Zarate highlighted that out of P1.1 trillion for infrastructure, only P2.3 billion or 0.21% was allocated for the construction of hospitals and health centers. Contrast this with the allocation to the National Task Force to End Local Communist Armed Conflict of a jaw dropping P19.1 billion. The pandemic is a national emergency that demands quick and substantial action. But we cannot deny that the problem of the Left’s 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 for the indigents among us infected with and hospitalized for COVID-19? Swab tests have to be paid for by the people themselves. Hospital bills can run to half a million to more than a million pesos depending on the procedures. No wonder, in the recent “Light and Shadow” presentation of Dr. Vic Abola on the pandemic winners, IT and telcos, Dr. Bernie Villegas added health and wellness products and services. This is a clear case of a public governance deficit that is funded by civil society.
Setting aside funds for COVID-19 vaccines sounds sensible but time inconsistent. Suppose the vaccines become available beyond 2021 while the virus remains unrelenting, continuing on its surge? By all means, let us allocate some amount for the vaccines but let it be rationalized. We cannot inoculate all the 108 million Filipinos at once. But containment measures should be prioritized and strengthened so that the need for the vaccines would not be as pressing as avoiding more mortalities. The narratives of countries that succeeded in bringing down their infection and mortality rates should be helpful to our legislators.
Basic public access to hygiene facilities is beyond the reach of some seven million Filipinos based on 2019 data from the Department of Health. They cannot wash their hands because neither water nor soap is available. Our exhortation to wash hands, wear face masks and face shields is meaningless. There is a high level of awareness but the poor cannot afford these health protocols. Avoiding crowded places is also Greek to them because their housing units are small and cramped.
What is saddening is that the budget, as passed by Congress, according to the Senate’s pork hunter Senator Ping Lacson, continues to undergo amendments in a small group in Congress. He discovered a pattern of reducing the national infra projects in favor of local infra projects “that were apparently pushed by congressmen.” Lacson quoted Article VI, Section 26 of the Constitution in admonishing his counterparts that amendments even for errors after the passage of the budget shall not be allowed.
This is what the Fund was concerned about.
There are other propositions that would define our momentum for recovery.
First is the global dynamics of the virus. Last week, for one day, more than 400,000 people were infected. This has pushed the global incidence to 40 million with over a million deaths. Tenmillion increases take a shorter time today than previously. With the onset of winter, Europe is again the epicenter and more lockdowns are expected. Once the effects spill over to trade and investment, the prospects for many emerging markets including the Philippines would be bleak. We shall see the impact in the overseas cash remittances which shrank by nearly 3% in JanuaryAugust 2020. As pointed out by the ANZ Bank recently, there is limited scope for offsetting the impact of the global pandemic on remittances. In fact, some 10% of our overseas workers have returned and more are expected. Our old reliable mitigant to trade shortfall is getting undermined by the virus.
Second is confidence. While the Government acted fast on monetary and fiscal measures to cushion the impact of the pandemic on both jobs and health, we cannot say this with great compliment to our health authorities. We are now in the seventh month of the pandemic and it’s only recently that we could afford to somewhat ease the lockdown. What is troubling is when we start going into the second and third waves. Flattening the curve is crucial for restoring confidence of both consumers and investors.
A common theme in many Webinars during the last FundWB Annual Meeting was the need for sustained policy support to motivate business activities. This costs money. While Fitch raised the likely possibility that the Philippines will ramp up higher debt because revenues are weak, we are not overly worried. Going into fiscal overhang and greater indebtedness is thrust upon us by the pandemic. We should bite the bullet, but only after we ensure that public spending is earmarked for promoting jobs and health. Treasurer Leah de Leon should by all means, source the money from the capital markets with so much liquidity and charging the lowest rate in decades. If we could turn this around and produce even a little growth higher than 2- 3% market rates today, the Republic should still be ahead.
There are other spoilers. The Philhealth scandal is the most insensitive portrait of bad governance in the Philippines especially today. We have the “pastillas” bribe takers, according to Senator Risa Hontiveros, from the Bureau of Immigration who have practically “rolled out the red carpet for the ‘online gambling industry and the cross-border trafficking of women.’” The cited 2019 Commission on Audit report on public works project execution does not inspire public confidence. Delayed and unimplemented projects worth P101 billion violated the procurement law. In 2018, the amount was more staggering at P118 billion. Some projects were not even started at all. Can we expect anything positive from investigations of these scandals?
During this crisis, the major casualty is indeed confidence. No doubt, uncertainty has increased and pressures on survival have multiplied. Strong policy support is essential. From a macroeconomic standpoint, it is important to ensure that liquidity and credit are available while cushioning firms and households from the economic effects of the lockdown.
During China’s Financial Street Forum two days ago, BIS General Manager Agustin Carstens, former governor of Bank of Mexico and finance minister, championed two important ideas of financial deepening and financial innovation. For him, promoting high- quality savings over the long run will help in “removing 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 developing a good pension system can help increase local savings. A good pension system will help longterm business endeavors and “reduce herd mentality and irrational market movements.” A robust capital market compensates for the banking sector when distressed.
Financial innovation and digital services, and they have many adherents in the Philippines, can support the country’s payment system as they are doing now. Healthcare provision can receive a tremendous boost from the digital push. Digitization can also strengthen financial literacy. This can lead to higher savings and investment.
These are some building blocks of an exit strategy to the economic deadlock. Worry is not one of them. After all, as a humorist once said “worry is like a rocking chair; it gives you something to do but never gets you anywhere.”