Lingering health crisis calls for new development plans

The longer the health crisis continues, the less likely a Vshaped economic recovery will happen, especially for developing countries like the Philippines. As such, economic planners should revisit the mid- and long-term development plans and factor in the lingering health threat.

Many still hope that the economy bounces back with vigor when the pandemic wanes. But as the World health Organization reported, the crisis may worsen. The longer the pandemic lasts, the weaker economies will be, and the weaker they are, the longer their recovery.

At least for the Philippines, hopes of a quick recovery are buoyed by its sound economic fundamentals. Its gross domestic product (GDP) rate was among the highest in the world before the outbreak. Increased public spending on infrastructure under the Build, Build, Build Program complemented the key drivers of growth — remittances from overseas workers and income from the outsourcing sector.

Obviously, all that changed when the coronavirus disease 2019 (Covid-19) broke out. The Philippines, along with the world, had to take aggressive measures to contain the outbreak. During lockdown, 75 percent of the economy was shut down. It was no surprise that the GDP in the first quarter contracted by 0.2 percent, the consequence of the outbreak and eruption of Taal Volcano. Also, the GDP forecast for 2020 is negative.

economic managers hope that the economy will begin bouncing back in the third quarter. Perhaps. Then again, cases are still increasing here and around the world, and so recovery may not start until a vaccine or effective treatment becomes available — probably in 2021.

Vaccine development takes time, because scientists need to ensure the preparation’s efficacy and safety. Filipinos should remember the controversy involving the anti-dengue vaccine Dengvaxia, which was hastily administered to school children and was later blamed for many of them dying. Proper testing takes time, so do mass production and distribution.

Better treatment protocols will likely come earlier than a vaccine. even with a treatment, the challenge for governments would be to minimize exposure to ensure that medicines, as well as hospital beds, are sufficient to meet demand. Failure in that raises the possibility of another lockdown, which bears a heavy economic toll.

In the meantime, what?

We believe that the policy for now is to increase spending. But that is no easy feat. Also, there is a wrong way to go about it, like spending on activities with low multipliers.

The government was right to resume work on its projects. Construction work has a high multiplier. But the Build, Build, Build Program was crafted before the health crisis, and simply resuming work on existing plans is insufficient. Instead, projects should be expanded, and new ones should be added to bolster the impact of public spending.

For example, airport renovations and construction should be increased now. The same may be said about related infrastructure, like roads. Fewer people are travelling, afraid of contracting Covid-19. That will continue to be the trend even when quarantines are downgraded or lifted.

Public spending will not be enough, however. The Philippines has a consumption-led economy, with private sector spending accounting for about 70 percent of GDP.

Of course, many remain fearful of going out and spending. If they do go out, stores, restaurants and similar establishments limit the number of customers that they accommodate to enforce some distancing among them.

Also, the peso had been appreciating versus the US dollar. Last week, the exchange rate fell below P50 to the dollar. Those receiving remittances from abroad, as well as the overseas Filipino workers repatriated recently, are at a disadvantage because the foreign currencies they hold do not buy as many pesos today.

For the most part, market forces determine the exchange rate. But given the situation now, perhaps the central bank should intervene to make the peso depreciate a bit to encourage spending.

Spending seems counterintuitive in a crisis. Naturally, wasteful spending should be avoided even in good times. Spending for the future is something that can be done with clear purpose and economic dividends.

With the pandemic and resulting economic fallout, people could only prepare and react to circumstances. The world was unprepared. But we must now act for the long term.