Worries grow over PH COVID-19 economic scars

While the Philippine economy was expected to grow the fastest in the region in the next two years, it needs to address the scarring effect of the prolonged COVID-19 pandemic on the education sector as well as small businesses.

The regional surveillance organization Asean+3 Macroeconomic Research Office (Amro) earlier projected the Philippines’ gross domestic product (GDP) to grow 6.9 percent this year and 6.5 percent next year, the highest growth rates it estimated in Association of Southeast Asian Nations (Asean), China and Hong Kong, Japan, as well as South Korea.

Despite lingering external risks, “the Philippines is one of the countries that we are quite optimistic about,” Amro chief economist Hoe Ee Khor told a press briefing on Wednesday.

But Amro economist Andrew Tsang pointed to socioeconomic scarring wrought by COVID-19, which would manifest in the medium term or the next two to five years.

Upgrade and upskill

Khor pointed to the prolonged closure of schools, and the subpar quality of online classes dependent on internet infrastructure. Since the onset of the pandemic in March 2020, the Philippines would only resume 100-percent in-person classes this November.

To address this, Tsang said the Philippines “should gradually shift to upgrading and upskilling the workforce to embrace a more technology-driven economy in the longer term.”Amro group head and lead economist Matthew Yiu also flagged scarring on micro, small and medium enterprises (MSMEs), thousands of which folded up at the height of the most stringent COVID-19 lockdowns. “If the recovery momentum weakened, I believe the SMEs will still be, in some degree, affected.”

As such, Yiu said the MSME sector still needed “targeted support” to minimize scarring, especially on the hardest hit businesses, while moving towards fiscal consolidation to narrow budget deficits and repay debts ballooned by the fight against COVID-19.

“The fiscal consolidation plan should enhance fiscal sustainability without jeopardizing economic recovery. The pace of fiscal consolidation can be expedited once the private sector recovery becomes self-sustaining, by continuing to improve the efficiency of public spending programs, while enhancing revenue collection,” Amro said in a statement.

Structural challenges

“The scaring effects caused by the pandemic have raised the urgency to take action to build resilient, sustainable and inclusive long term growth. The scarring effects from the pandemic could be significantly reduced by having robust growth in 2022 and 2023. Otherwise, it would take a longer time to mitigate the scarring effects,” Tsang said.

“Policy should mitigate the scarring effects and address the structural challenges to achieve a more resilient and sustainable long-term growth, including financial digitalization and green policy,” Tsang added.

Amro said that despite robust growth expectations for the Philippines during the near term, “the recovery is clouded by risks and challenges.”

“Given the high vaccination rate, a resurgence of COVID-19 infections should not pose a major risk unless the variant is more resistant to vaccines,” Amro said.