The pandemic will aggravate the gap between the rich and the poor in the region and countries like the Philippines will struggle amid low spending for social protection, debt watcher Moody’s Investors Service said Tuesday.
“The impact of the coronavirus pandemic will exacerbate income inequality across Asia-Pacific. Governments with constrained fiscal capacity have limited scope to address the resulting social and political strains, which could amplify credit risks,” Moody’s said in a report.
“Expenditure measures can support vulnerable groups, but nearly all Asia-Pacific emerging markets have weaknesses in their social protection systems: social spending is lowest in India, the Philippines and Indonesia, although efforts to strengthen redistribution systems are in train,” Moody’s said.
In the Philippines, spending on social protection was equivalent to only about 2.9 percent of gross domestic product (GDP) even as 36.7 percent of its population were covered by programs aimed at alleviating poverty.
As such, Moody’s expects emerging economies to struggle while they address the social and political risks coming from the widening income gap amid the pandemic.
“Governments with weak social protection systems and low fiscal capacity to raise spending will face particular challenges in tackling income inequality. India, Indonesia and, to some extent, Malaysia and the Philippines stand out in this regard,” Moody’s said.
The debt watcher nonetheless noted that these four emerging Asian economies have already been tapping fiscal policy to reduce income inequality, particularly through their cash transfer schemes as well as wider social assistance coverage for poor households.
In the case of the Philippines, Moody’s said it “reports strong coverage and benefit incidence, but low spending as a share of GDP.”
The Philippines disburses conditional cash transfers through its Pantawid Pamilyang Pilipino Program targeting low-income households, which also benefited from the cash assistance given away under the Social Amelioration Program at the height of the longest and most stringent lockdown in the region. INQ