COVID, polls seen as top risks to 2022 economic recovery

MANILA, Philippines—President Rodrigo Duterte’s economic team has flagged a prolonged pandemic and next year’s presidential elections as potential spoilers to sustained recovery from the slump wrought by COVID-19.

The Cabinet-level Development Budget Coordination Committee (DBCC) in its Fiscal Risks Statement 2022–the latest of the yearly reports which listed expected socioeconomic challenges in the next fiscal year — recommended stepping up mass vaccination and preparing for new variants which may reduce gains in containing the spread of the deadly coronavirus.

This year and next year, “risks to the growth outlook remain, owing largely to the uncertainties brought by the COVID-19 pandemic which can be exacerbated by the threat of the new coronavirus variant,” the DBCC said.

The government had downgraded its 2021 gross domestic product (GDP) growth target to a more attainable 4-5 percent following lockdowns imposed in August to contain the Delta strain.

For 2022, the Philippines aspires to grow GDP by 7-9 percent, which the DBCC said “will be supported by the timely implementation of the fiscal program in 2021, as well as the effective rollout of the vaccination program.”

“Consumer and business confidence are expected to remain positive buoyed by the further relaxation of restrictions locally and overseas,” the DBCC said.

“As vaccines become more widely available, domestic demand and external trade are expected to pick up, benefitting both the industry and services sectors” next year, it said.

But the DBCC said uncertainties related to the COVID-19 pandemic would continue to put at risk recovery prospects.

“Downside risks include the possibility of virus resurgence including from new variants which could prove difficult to contain and could trigger increased incidence of COVID-19 infections before vaccinations are widely performed,” the DBCC said.

“Slower-than-expected progress on medical interventions is also expected to dampen the possibility of a quick exit from the pandemic and weaken confidence,” it said.

The DBCC nonetheless noted that recent progress in ramping up global vaccine manufacturing and distribution, and these jabs’ effectiveness in fighting the disease, “could increase expectations of easing of restrictions on economic activities, boosting confidence among firms and households.”

Socioeconomic Planning Secretary Karl Kendrick Chua has been pushing for a change in tack to consider COVID-19 endemic or a part of our new normal lives, instead of resorting to draconian lockdowns whenever there was a surge in infections.

“To balance the health and economic costs of the pandemic, the government will continue to adopt a risk-based approach to quarantines and find a balance between stemming the spread of COVID-19 and the need to restore jobs and incomes of the people, instead of shutting down large segments of the economy,” the DBCC said.

Also, while elections historically boosted economic growth, the DBCC cautioned that the presidential race in May 2022 “may affect the country’s political and economic climate.”

“The implementation of the government’s infrastructure projects may be disrupted, as public works and the release of public funds during the election period are prohibited under the Omnibus Election Code of the Philippines,” the DBCC said, referring to the ban on new infrastructure projects months ahead of election day.

The DBCC before the 2019 midterm elections asked the Commission on Elections (Comelec) to exempt over a hundred big-ticket infrastructure projects belonging to the Duterte administration’s ambitious “Build, Build, Build” program, but it was declined. As a result, economic growth slowed during the first half of 2019, aggravated by delayed approval of that year’s national budget due to issues on alleged “pork barrel” funds among legislators.

Also, with some legislators up for reelection, “there may also be a delay in the passage of key reforms during the campaign period,” the DBCC said.

Duterte’s economic managers have been pushing for bills to open the economy to more foreign participation, plus additional tax reform measures, some of which languished in Congress since the start of this administration.

TSB