Economic managers are wary of a prolonged pandemic that may slow economic recovery and put more pressure on the already meager resources the country is using to fight its health and socioeconomic woes.
“With the highly unpredictable nature of the pandemic, the main downside risk to the country’s sound economic growth narrative stems from a more profound and prolonged impact of COVID-19 than currently anticipated,” the Cabinet-level Development Budget Coordination Committee (DBCC) said in its 2021 Fiscal Risks Statement report published on Friday.
It said the decline in revenues against a backdrop of increased spending would put pressure on the country’s fiscal position this year up to 2022.
“A sustained high level of local transmission and further dampening of economic activity could delay recovery or result in larger loss in productivity,” the DBCC warned.
In particular, the DBCC said the export, tourism and transport sectors would take a bigger hit, while the adverse impact of the COVID-19 pandemic on consumption as well as cash remittances sent back home by Filipinos living and working abroad “would imply deeper than expected contraction in the country’s economic growth.”
Even the business process outsourcing sector (BPO), the country’s biggest dollar earner, would not be spared, the DBCC said.
“BPO receipts are also expected to be affected by restrictions on the mobility of workers (as public transportation services are limited), except for those who can work from home.”
Until a vaccine arrives in the country, the threat of COVID-19 would always remain, it added.
The DBCC had projected the gross domestic product (GDP) to contract by 4.5-6.6 percent this year after the economy entered into a recession and shrank by an average of 9 percent during the first half.
Outside of the country, external risks are also lurking, subsequently posing a threat to the domestic economy.
“Downside risks to external demand and financial conditions could also materialize. The pandemic has had a sweeping effect on economies and financial systems around the world,” the DBCC said, noting that “the turbulence in financial markets has constrained liquidity.”
“The possibility of heightened financial volatility cannot be discounted as global financial conditions could tighten more as sovereign and corporate risk premia rise,” it said.
It noted firms may not be able to meet their loan obligations, thus putting pressure on balance sheets and credit supply.
According to the DBCC, it is important that “timely implementation of a well-targeted recovery program in 2020, alongside efforts of the private sector, will mitigate the impact of the COVID-19 pandemic,” such that GDP was projected to revert to a 6.5-7.5 percent growth next year.
The country is also reminded of fiscal risks from natural disasters, ballooning pension of military and uniformed personnel, and the Supreme Court’s Mandanas-Garcia ruling mandating a bigger internal revenue allotment for local government units by 2022.