Recession in the Philippines was likely to lead to worsening poverty and a delay by two years in the country’s bid to become an upper middle class country, according to World Bank (WB) analysts.
WB projected Philippine gross domestic product (GDP) to enter negative territory with a 1.9 percent contraction this year largely as a result of the COVID-19 pandemic and lockdowns that ground the economy to a halt.
WB said a swift transition to a digital economy could help in Philippine recovery post-pandemic.
Rong Qian, at an online press conference on Tuesday (June 9), said WB sees a “deeper” decline in GDP in the second quarter of the year—the height of one of the most restrictive pandemic lockdowns in the region.
As the economy gradually emerges from a lockdown, GDP was still expected to shrink year-on-year in the third quarter, before “muted” growth by the fourth quarter, Qian said.
The recession will result in an “increase in poverty in 2020,” Qian said, although he could not estimate by how much given the extent of uncertainty brought by the pandemic.
Qian said the World Bank estimated a potential increase in poverty rate by 3.3 percentage points as a result of a lockdown that erases at least two months’ worth of income.
She, however, said that some measures that the Philippines took could offset the possible worsening of poverty.
These included cash dole outs to poor families and displaced workers and wage subsidies for small businesses.
As of 2018, nationwide poverty rate stood at 16.7 percent.
Once the Philippine economy recovers in the next two years, “poverty can decrease again,” Qian said.
GDP was expected by the World Bank to revert to growth next year, estimated at 6.2 percent.
The government target was to slash poverty rate to 11 percent by 2022, the year President Rodrigo Duterte steps down.
This year’s recession will also delay the Philippines’ transition to upper middle-income country status, likely by two years, Qian said.
The Washington-based WB defined an upper middle-income country as having per capita income of between $3,956 and $12,235.
The latest data on the World Bank’s website showed that the Philippines had a per capita gross national income (GNI) of $3,830 in 2018, which classifies it as a lower middle income country.
In 2018, the Philippines should have had already moved up to upper middle-income status but a delay in approval of the national budget by a Congress bickering over funds that its members could pocket slowed growth to an eight-year low of 6 percent.
Amid the pandemic, GNI declined by 0.6 percent year-on-year during the first quarter of this year.
The possible delay in climbing to upper middle-income country status, however, may benefit the Philippines at a time when it borrowed more from multilateral lenders and bilateral development partners to replenish funds for COVID-19 response.
If the Philippines becomes an upper middle-income country this year, it will lose by 2022 the access to preferential interest rates from its bilateral partners and other lending institutions.
Qian said to usher in recovery, a “digital infrastructure will play a critical role.”
“Measures that restrict mobility, regulate physical contact, and limit business activity have forced more businesses and families to use the internet for transactions,” she said.
This change in consumer behavior and business operations is expected to continue even after lockdowns end.
To take full advantage of this situation and help the economy recover from the losses it has suffered due to the lockdown, the country must ramp up its efforts to accelerate a digital economy, Qian said in a statement.
Achim Fock, WB acting country director for Brunei, Malaysia, Philippines and Thailand, said it was also important to strengthen health care systems.
Funding support to businesses, especially small and medium scale enterprises, “can help ensure that the recent shocks do not cause permanent damage,” Fock said.