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PH eyes $500-M loan to help poor families, SMEs

PH eyes $500-M loan to help poor families, SMEs
By: - Reporter / @bendeveraINQ
/ 04:13 AM April 27, 2020

The Philippines is seeking from the World Bank another $500-million loan to replenish funds being doled out to poor families and small businesses affected by the COVID-19 pandemic.

Documents showed that the World Bank’s board of directors will discuss on May 20 the Philippines’ Emergency COVID-19 Response Development Policy Loan to be implemented by the Department of Finance.

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The fresh loan is aimed at mitigating the impact of COVID-19 on the poor and vulnerable households, and providing financial relief to affected small and medium enterprises (SMEs).

The Philippine government is implementing the social amelioration and small business wage subsidy programs to aid these sectors while most parts of the country are on prolonged COVID-19 lockdown.

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Specifically, the financial assistance will “deepen the benefits under the existing 4Ps (in effect, topping up the monthly assistance given to the 4.4 million eligible households in the program); expand the reach of social assistance to affected households that are not part of the 4Ps (13.6 million households), and assist vulnerable overseas Filipino workers,” the World Bank said, referring to the conditional cash transfers under the Pantawid Pamilyang Pilipino Program.

Severely disrupted

“Around 18 million Filipino households who are either poor or in the informal sector are extremely vulnerable to income shocks due to a potential increase in health expenditures and the loss of incomes due to the impact of COVID-19 on the Philippine economy. These individuals typically have no sources of income during the enhanced community quarantine (ECQ), no social security, limited savings, no access to formal financing and are highly at risk of falling deeper into poverty,” the World Bank noted.

Also, the World Bank said that this upcoming loan would help alleviate the financial burden faced by formal SMEs through a temporary two-month wage subsidy; provide additional temporary financial relief to SMEs through deferrals of tax and social security payments, and support business continuity by facilitating access to credit through an SME credit guarantee scheme.

The World Bank noted that micro and SMEs accounted for 99.5 percent of all businesses in the Philippines, but they had been hit hard by the COVID-19 outbreak and were at risk of bankruptcy in the absence of public support.

“The Luzon-wide ECQ enforced to curtail the spread of COVID-19 as well as the separate local lockdowns imposed by subnational governments have severely disrupted economic activity nationwide and exposed the vulnerability of MSMEs. According to the rapid survey conducted by the government, 77 percent of micro and small firms and 62 percent of medium-sized firms had to close due to the ECQ, while MSMEs who remained open experienced an average sales drop of 66.5 percent. Without strong government intervention, temporary closures may end up becoming permanent as these firms run out of working capital to finance ongoing fixed costs and risk eventually defaulting on their debt,” the World Bank said.

According to the World Bank, dole outs for poor households and SMEs would prevent an increase in post-COVID poverty as estimates showed a 3.3-percentage point increase in poverty, assuming no government intervention, while incomes of informal workers and entrepreneurial activities declined by 16.7 percent (in effect, two months’ worth) due to disruptions brought about by the lockdown.

Protect vulnerable firms

“In addition, this operation is also expected to contribute to poverty reduction and shared prosperity in the medium term by supporting government efforts to protect vulnerable firms during and after the lockdown,” according to the World Bank.

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But the World Bank warned that while the macroeconomy remained strong in the medium term, a more severe and prolonged COVID-19 outbreak might further impact economic growth and poverty reduction, adding that “a much worse outbreak that leads to an extended ECQ may risk overwhelming the government’s institutional and fiscal capacity to roll out enough health and social protection for its citizens.”

Just last week, the World Bank green-lighted a $100-million loan for the Department of Health’s COVID-19 Emergency Response Project, under which more medical supplies will be bought and laboratories set up to save more than 16,700 Filipinos from the deadly COVID-19. INQ

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