What it would take
The World Bank adjusts downward its GDP expectations for the Philippines; says external environment, vaccines and better mobility are key factors for growth.
THE Philippine economy is expected to post slower growth this year compared to what the World Bank initially expected in December 2020, and the recovery will likely be toward the end of next year.
In its East Asia and the Pacific report, the World Bank said the Philippines could register a growth of 5.5 percent this year, lower than the 5.9 percent it estimated in the Philippine Economic Update (PEU) released in December.
However, higher growth at around 6.3 percent is expected for 2022 compared to the 6-percent estimate in December. Growth in 2023 is projected to be slower than 2022 at 6.2 percent.
“In the Philippines, growth is expected to recover in the medium term, contingent on an improved external environment, a successful vaccination program, and the loosening of movement restrictions,” the World Bank report stated.
The World Bank’s forecasts are below the Development Budget Coordination Committee (DBCC) targets set for this year and in 2022.
As of December 2020, the DBCC projects GDP growth to reach 6.5 percent to 7.5 percent in 2021, while growth is expected to hit 8 percent to 10 percent in 2022.
“[It’s] too early in the year to make changes,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua told reporters on Friday. “There are nine months of data ahead.”
Crisis factors
IN a briefing on Friday, Aaditya Mattoo, Chief Economist for East Asia and the Pacific at the World Bank, said the Philippines suffered from the crisis because of the government’s failure to control the disease; the economy’s dependence on tourism; many households relied on remittances; and remains vulnerable to natural disasters.
Mattoo also said the country’s growth suffered during the pandemic due to the “tough response” of implementing a long lockdown “without delivering a commensurate benefit in terms of containment of the disease.”
The country, he said, has been less successful than other countries in the region in terms of “transitioning from a lockdown to an efficient containment strategy.”
In order to recover, the Philippines needs to respond to key challenges—controlling the spread of the disease and making greater efforts to “adapt to a new world” where face-to-face tourism will not recover soon.
“Your governments gambled on growth [thinking that] growth could lift millions from poverty. That worked remarkably well, it was a tremendous success. But as your incomes increased, I think governments must rethink the social contract. How do you equip the state to efficiently support the weaker sections of the population and stabithe economy?” Mattoo said.
The report further stated that the Philippine government cannot delay the purchase and administration of vaccines. The World Bank said vaccines can significantly reduce the number of Filipinos infected by Covid-19.
The report said the spread of Covid-19 has not been put under control in Indonesia and the Philippines, and “rapid vaccination” should be made a priority to reduce the number of deaths and prevent health systems from becoming overwhelmed.
“The challenge for these countries is to procure and distribute sufficient vaccines and to address any vaccine hesitancy among people through effective information campaigns,” the report stated.
Better targeting needed
THE World Bank found that while the government provided assistance during the pandemic, it also provided ayuda to workers whose incomes were not affected by the lockdowns.
Data showed that this occurred in countries like Indonesia, Mongolia and the Philippines. In Cambodia, Indonesia, Malaysia and Vietnam firms received assistance regardless of the impact of the pandemic on their businesses.
The World Bank said it is important for countries to improve public investment management. If assistance is streamlined and focused on areas where the social rate of return is the highest, the returns could be four times higher.
“Countries were less successful, however, in targeting households that experienced Covid-19– related income shocks. Indeed, the share of households receiving assistance does not differ significantly between households that reported a Covid-19–related income shock and those that did not,” the World Bank said.
Based on the results of World Bank’s high-frequency phone surveys, over 60 percent of the bottom 40 percent, middle 40 percent, and top 20 received assistance from the government.
Further, nearly 80 percent of households that experienced negalize tive income shock and those which did not experience negative income shock received assistance from the national government during the pandemic.
Cash transfers
MEANWHILE, many countries are planning to continue the cash transfers this year. However, there are indications from a forthcoming World Bank report that the scope of the assistance in the Philippines for 2021 “appear much more modest than in 2020.”
“Governments now face sharp trade-offs. On the one hand, ending programs or reducing benefit levels may help to reduce the fiscal costs, but it could also result in increased poverty and lower household investment in health and education,” the report stated.
“On the other hand, extending social protection programs and maintaining benefit levels will afford needed protection, but will also result in greater fiscal pressures,” it added.
However, the report stated that in terms of the Pantawid ng Pamilyang Pilipino Program (4Ps) or the country’s flagship Conditional Cash Transfer (CCT), it “played an important role in protecting beneficiary households against food insecurity” during the pandemic.
The World Bank noted that the pandemic will increase “inequality in both the short and longer terms.” For one, the effect on the poor’s welfare is greater than rich households.
The report said income losses for poor households mean they would reduce their food consump
tion, accumulate debts and sell their assets, undermining the ability to recover the crisis. Food insecurity also makes women more vulnerable to domestic violence, as well as render them powerless economically.
Apart from this, the World Bank said school closures have had a dramatic impact on the lives of the poor. While students from wealthier households have been able to focus on their studies, those from poor households find it hard to remain engaged in their “online, mobile, or face-toface educational activities.”
Growth in the region
IN a statement, the World Bank said only China and Vietnam are experiencing a V-shaped rebound where output has already surpassed prepandemic levels. In the other major economies, output remained on average around 5 percent below prepandemic levels.
Growth in the region is expected to accelerate from an estimated 1.2 percent in 2020 to 7.5 percent in 2021. But it is likely to see a three-speed recovery.
“The economic shock caused by the Covid-19 pandemic has stalled poverty reduction and increased inequality,” said Victoria Kwakwa, Vice President for East Asia and the Pacific at the World Bank. “As countries begin to rebound in 2021, they will need to take urgent action to protect vulnerable populations and ensure a recovery which is inclusive, green and resilient.”
China and Vietnam are expected to grow even more strongly in 2021, by 8.1 percent and 6.6 percent, respectively, up from 2.3 percent and 2.9 percent in 2020.
Other large economies, more scarred by the crisis, will grow about 4.6 percent on average, slightly slower than pre-crisis growth. Recovery is expected to be particularly protracted in tourismdependent Island economies.
Hardest hit of all have been the Pacific Island countries. Economic performance has depended on the effectiveness of virus containment, the ability to take advantage of the revival of international trade, and the capacity of governments to provide fiscal and monetary support.
In 2020, poverty in the region stopped declining for the first time in decades. An estimated 32 million people in the region failed to escape poverty (at a poverty line of $5.50/ day) due to the pandemic.
The report estimates that US stimulus could add 1 percentage point on average to the growth of countries in the region in 2021 and advance recovery by about three months on average. Risks to the outlook come from slow implementation of Covid-19 vaccines, which could slow growth by as much as 1 percentage point in some countries.
The report calls for action to contain the disease, support the economy, and green the recovery. It warns that with current stocks and allocation of vaccines, industrial countries would achieve more than 80 percent population coverage by the end of 2021, while developing countries will achieve only about 55 percent coverage.
In many EAP countries, relief is less than earning losses, stimulus has not fully remedied deficient demand, and public investment is not a significant part of recovery efforts, even as public debt has increased on average by 7 percentage points of GDP.
And “green” measures are outstripped by “brown” activities in the stimulus packages across the region: on average only one in four recovery measures taken by countries in the region is climate friendly.