P2.2 trillion in losses: Cost of COVID-19 impact on PH economy

The COVID-19 crisis will cost the Philippine economy P2.2 trillion in losses this year as firms shed profits while millions of workers lose their jobs and income.

To ease the economic pain inflicted by the pandemic, acting Socioeconomic Planning Secretary Karl Kendrick T. Chua told the business community at an online seminar on Thursday that an additional P846-billion stimulus was needed.

The amount had been calculated to not add pressure to the already widening budget deficit which had jumped to 10,000 percent of April 2019 level.

Chua’s presentation showed that in case the economy shrinks by 3.4 percent in 2020—the worst case scenario—nominal gross domestic product (GDP) will fall to P19.3 trillion from P19.5 trillion in 2019.

The economic team had projected contraction of 2 to 3.4 percent.

Before the pandemic, Philippine GDP had been projected to rise to P21.5 trillion.

Based on that, total value-added loss this year as an impact of COVID-19 was estimated by the Department of Finance (DOF) and National Economic and Development Authority (Neda) to reach P2.2 trillion.

Profit and wage losses accounted for the bulk—P1.919 trillion or 87 percent of estimated total value-added loss for 2020.

Chua said that of the P846 billion needed to revive the economy, only P173 billion, equivalent to 0.9 percent of GDP, will have to be shelled out by the government through a fiscal stimulus program embedded in the proposed Philippine Program for Recovery with Equity and Solidarity (PH-Progreso) being pitched by the economic team to Congress.

PH-Progreso included the proposed Bayanihan 2, Financial Institutions Strategic Transfer Act (FIST) and Guide bills—capital and spending support to businesses and consumers.

The proposed measures seek to provide liquidity to banks and companies.

The economic team was also pushing for the proposed Corporate Recovery and Tax Incentives for Enterprises Act which seeks to slash corporate income tax to 25 percent in July while providing flexible tax incentives to investors.

Under Create, forgone revenues had been estimated to hit P42 billion during the second half of this year—at a time when tax collections were low amid a recession on top of a projected P625-billion loss in the next five years.

Chua noted that fiscal measures under PH-Progreso would slightly jack up the projected budget deficit for 2020 to 9 percent of GDP, higher than the 8.1-percent ceiling approved by the Cabinet-level Development Budget Coordination Committee (DBCC) this month, equivalent to P1.563 trillion.

On the other hand, the P673 billion, equivalent to 3.5 percent of GDP, needed for additional stimulus, can come from budget savings, off-budget items, monetary policy, financial sector regulatory relief and private sector contribution, which won’t add to the deficit, Chua said.

Chua told another forum hosted by The Manila Times also on Thursday that instead of a Bayanihan 2 bill, it will more practical to extend the validity of the Bayanihan to Heal as One Act until yearend.

“This is simplest mode,” said Chua.

He said extending the validity of the Bayanihan law would keep budget and procurement flexible, allow transfer of allocations and changes in priorities in the use of 2019 savings and this year’s budget.

To support small businesses, Chua said the government was looking into another round of wage subsidies for workers, while also imposing a “temporary and targeted wage reduction to keep jobs” moving forward.

Chua said the ongoing P51-billion small business wage subsidy (SBWS) program so far already benefitted close to 3.4 million employees of micro, small and medium-sized enterprises (MSMEs) that were shuttered or struggled to pay salaries.

The first tranche of P5,000 to P8,000 in wage subsidies was distributed in the first half of May, with another tranche for disbursement in the second half of the month.

“We’re ready to provide more (wage subsidy) but it should be very targeted,” Chua said.

Edited by TSB