Assistance to vulnerable sectors and capital for small business, basic requirements to recovery
Social assistance to vulnerable sectors, lifeline for small enterprises vital to recovery
MANILA – The new year began with natural disasters from Taal Volcano’s eruption and the COVID-19 pandemic would reduce the country’s economy by at least 1.9 percent this year. However, there are good chances the country can recover within the next two years. This was how World Bank’s Philippines Economic Update looks at the current conditions.
To prevent the spread of COVID-19, the national government opted to enforce strict containment measures that led to severe disruptions in manufacturing, agriculture, tourism, construction and trade according to the reported Braving the New Normal.
To compound the headwinds in the country’s economy, thousands of overseas Filipinos have begun to return. The economic downturn is appropriately described as broad-based, steep and deep as it stopped investment activity which led to the lowest consumption growth in 30 years. Private consumption growth fell to 0.2 percent in the first quarter of 2020 from 6.2 percent in 2019. According to the report, the hotel and restaurant industry suffered the most as it contracted by 15.4 percent.
With the economic contraction, it is expected to increase poverty incidents. Containment measures cut income opportunities from seasonal wage earners and those engaged in entrepreneurial activities in non-agricultural activities and low-end service jobs which played an important role in poverty reduction during the past years.
“During these difficult times, strengthening the capacity of the health care systems to control the outbreak while protecting poor and vulnerable households remain an urgent task for the country,” said Achim Fock, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. He added financial support to affected firms, particularly small and medium enterprises, to prevent job losses and bankruptcy , can help ensure that the recent shocks do not cause permanent damage to the country’s productive capacity and human capital.
Referring to results of a rapid survey made by the Philippine government, it was learned 77 percent of micro and small firms as well as 62 percent of medium-sized firms had to close due to enhanced community quarantine. And those who remained open suffered 66.5 percent drop in sales.
The growth forecast for the year assumes that the containment measures will gradually ears in the second half of the year and economic activities return in some sectors of the economy. With income losses, heightened uncertainty, household consumption and private investment are expected to remain weak.
On a more positive note, World Bank said economic growth prospects and poverty figures are likely to improve in the following years with a projected increase in consumption, stronger push in public investment as well as supportive fiscal and monetary policies as well as the recovery of global growth. The growth is projected to turn to above 6 percent in 2021 and 7 percent in 2022. According to the statement, economic growth will also increase because of the coming national elections which is will trigger expenses.
Recognizing the Philippine government’s strong fundamentals founded in structural reforms, helped the economy cope with the COVI-19 pandemic. The economy still has abundant external reserves and the lower public external debt in East Asia and the Pacific region. The Philippines still has the highest reserve ratio in the region which indicates that monetary policy has plenty of room to inject liquidity into the economy and help boost growth.
Meanwhile, Ms. Rong Qian, World Bank senior economist, said the country’s digital infrastructure will play a critical role in economic recovery.
“Measures that restrict mobility, regular physical contact, and limit business activity have forced more businesses and families to use the internet for transactions,” said Quian. She sees change in consumer behavior and firm operations is expected to continue even after quarantines end. She added the Philippines should accelerate its efforts towards the digitalization of the economy.
The report underscored the need for the Philippines to improve its digital infrastructure for reliable and affordable internet service. There is a need for an enabling policy environment for a competitive broadband market and enhanced access to affordable internet services across the archipelago. (Melo M. Acuña)
World Bank Senior Economist Tong Qian. (Screen grab from WB Press Briefing/Melo M. Acuna)