To minimize the pandemic-induced economic scarring, the Philippines needed to tap its available fiscal space to ramp up stimulus spending amid the threat posed on recovery by the more contagious COVID-19 strain, London-based Capital Economics said.
In a webinar, Capital Economics senior Asia economist Gareth Leather noted that while recent COVID-19 infections in the Philippines were relatively lower compared to spikes in neighboring Malaysia and Thailand, “cases are starting to take off as well, especially now that the Delta variant has taken place.”
With easing inflation and the Philippines’ gross domestic product (GDP) still about 10-percent smaller than prepandemic levels, Leather expects the Bangko Sentral ng Pilipinas (BSP) to ease interest rates to aid in economic recovery.
Leather said the support extended by the Philippines and Indonesia to sectors badly hit by the COVID-19 crisis was “not aggressive enough given the size of the shock that these economies have experienced.”
The Philippines fell to its worst post-war recession last year as annual GDP shrank by a record 9.6 percent amid the longest and most stringent COVID-19 quarantine restrictions in the region.
While GDP reverted to year-on-year growth of 11.8 percent during the second quarter due to low-base effects, the government expects to return to prepandemic output levels by 2022, among the last in the region.
The latest data of the Manila-based Asian Development Bank (ADB) had shown the Philippines’ war chest to fight the prolonged pandemic amounted to $30.46 billion or 8.63 percent of GDP as of last month.
Leather said the Philippines and Indonesia’s fiscal positions were “quite decent—they could have actually done a lot more if they wanted to.”
“The danger is they are actually going to harm their economies quite significantly because there hasn’t been enough fiscal support—more businesses have gone bankrupt, and it’s likely to mean that the long-term scarring is going to be much bigger than would otherwise have been the case,” he said.
With sluggish mass vaccination and meager fiscal support to date, the Philippines and tourism-dependent Thailand would suffer from the worst economic scarring in Asia, he added.
Leather said the fiscal conservatism in the region was a legacy of the Asian financial crisis of 1997-1998 which badly hurt Southeast Asia. “They’re so worried and wary of getting into more problems that they had 20-25 years ago, that they’ve been too relaxed and kind of too slow to really step up to the size of the challenge that these countries are facing.”
Last Tuesday, Socioeconomic Planning Secretary Karl Kendrick Chua said the government was worried about the prolonged pandemic’s deep scarring effects, especially on poverty-reduction, joblessness, hunger, health and other diseases, as well as the education sector.
Chua, who heads the state planning agency National Economic and Development Authority said they were still advocating the resumption of face-to-face classes in areas with low COVID-19 cases. “The long-term scarring effects of students not being able to learn has a permanent effect on their future productivity,” he said.