New PH growth goal of 4-5% for 2021 seen at risk

The government’s downgraded economic growth outlook of 4 to 5 percent this year may still be difficult to attain given the disruptions caused by renewed lockdown measures, an economist from Dutch financial giant ING said.

“We expect full year GDP (gross domestic product) growth to dip to 3.8 percent as the most recent round of ECQ (enhanced community quarantine) knocks the wind out of the recovery momentum with consumption lackluster, investment momentum fading and with government expected to rein in spending to limit the impact on the deficit,” ING Philippines economist Nicholas Mapa said in a research note.

The government recently lowered its GDP growth goal from the more ambitious range of 6 to 7 percent previously. In the first semester of the year, growth averaged at 3.95 percent after an 11.8-percent year-on-year growth in the second quarter coming from a very low base in the same period in 2020.

Despite the positive year-on-year GDP growth in the second quarter, economic output declined by 1.3 percent from the first quarter with the reimposition of tighter quarantine measures.

Swelling debt levels

“With growth momentum faltering, calls for an aggressive fiscal fight back have been mounted time and again with authorities oftentimes citing the lack of funding for any such additional spending or a third round of Bayanihan,” Mapa said, referring to the law mandating COVID-19 fiscal intervention and other measures.

The economist noted that the country’s debt levels continued to swell, with the debt to GDP ratio now overshooting credit rating agencies’ prescribed threshold of 60 percent for two quarters. He added that deficit to GDP ratio was likewise trending toward 10 percent.

“And yet the reason cited by authorities remains the same: there are no funds,” Mapa said.

Mapa took note of the treasury single account (TSA) currently sitting idly at the Bangko Sentral ng Pilipinas, referring to the national government’s demand placement.

“Currently, the balance of that account totals a whopping P1.6 trillion, roughly the size of excess liquidity in the financial system that likewise is going almost nowhere as bank lending remains in contraction,” Mapa said.

Since bottoming at P200 billion in late 2019, Mapa noted that the TSA had ballooned to the highest level since the pandemic. The July figure of P1.63 trillion can be drawn down anytime.

“It appears that the national government has been warchesting and building up quite a huge amount of funds; however. national government expenditures remain modest while growth momentum stalls anew,” he said.

Think tank Fitch Solutions, in a separate research note dated Aug. 16, said that the slow pace of vaccinations and difficulties in containing the COVID-19 outbreak would overwhelm the local health-care system. Due to diversion of health-care funds, it said the Philippine Health Insurance Corp. (PhilHealth) might not meet its medical coverage goal.

Fitch Solutions said that with the Philippines remaining a long way off from reaching herd immunity, the government may not be able to ease preventative measures more significantly.

“The locking down of Metro Manila in August and the heightened threat from the more infectious Delta variant has led us to lower our expectations for recovery through second half 2021,” it said.