PH seen able to handle COVID-19 economic shocks

The Washington-based Institute of International Finance (IIF) sees the Philippine economy contracting by more than 7 percent this year amid a COVID-19-induced global recession, although relatively lower public debt levels will help it bounce back.

In a Sept. 1 report titled “Emerging Market Vulnerabi­lity and Contagion,” IIF deputy chief economist Sergi Lanau and economist Jonathan Fortun said that across emerging markets, a combination of low growth, lack of policy space and limited buffers for external financing might make them vulnerable to contagion risks amid the COVID-19 pandemic.

But in the case of the Philippines, an IIF heat map showed its prepandemic economic growth and public debt levels would allow it to better handle COVID-19-related economic shocks.

In an email, Lanau told the Inquirer: “The positive assessment on the Philippines reflects two things. First, the country did not suffer from a persistent low-growth problem before COVID-19 started. This is an important advantage relative to countries that entered this global shock in a weak position.”

Prior to the pandemic, the Philippines’ gross domestic product (GDP) grew by an average of 6.6 percent from 2016 to 2019, unlike other emerging markets which suffered from low economic expansion.

“Second, in relative terms, the Philippines can afford more public ­spending to fight the pandemic than other emerging markets. This is because public debt isn’t too high and because the debt path has been favorable—debt hasn’t increased fast in recent years,” Lanau added.

The national government’s debt-to-GDP ratio fell to a record low 39.6 percent last year, but a surge in borrowings during the next two years to finance COVID-19 response will jack this up to 53.9 percent by year’s end and 58.3 percent in 2021, the highest since the 58.8 percent recorded in 2006. —BEN O. DE VERA