Infrastructure in priority push for Philippines after 2 - 3.4% contraction forecast
MANILA, NNA – To help the ailing Philippine economy that is expected to contract by as much as 3.4 percent this year, the country unveiled a priority program to boost infrastructure development, food production and investments Tuesday as part of the recovery process.
The country's finance secretary Carlo Dominguez has pushed for the urgent acceleration of the country’s major infrastructure projects in President Rodrigo Duterte's 'Build, Build, Build' program as he believed it is the “best driver of economic growth” and its continuation would create thousands of jobs.
After several years of high growth, the Philippines is expecting its economy to contract by 2 to 3.4 percent this year, according to the latest government forecast revised following the economic fallout from the coronavirus pandemic.
The projected contraction, expected to be its first in 20 years, is even worse than earlier estimates of minus 1.0 percent to 0.0 percent announced in March.
To boost consumption, another key driver of economic growth, Dominguez said the government should also promote the manufacturing of products notably food and boost food logistics chain as a priority since both have “strong and inelastic demand.”
Dominguez called for the establishment of food markets for efficient distribution, similar to the fruit and vegetable markets seen decades ago in Japan where farmers could sell produce directly to consumers.
He also proposed mass hiring of contact tracers to boost the government’s efforts to stop the transmission of the novel coronavirus as the move would providing jobs too.
He also called for the urgent passage of the Corporate Income Tax and Incentives Rationalization Act (CITIRA), which should now include “flexible tax and non-tax incentives” to attract investors.
The government’s economic team and legislators are in the midst of finalizing an economic recovery plan that would provide major funding for infrastructure and provide assistance to MSMEs (micro, small and medium enterprises) as well as other industries to mitigate the impact of the coronavirus crisis.
Meanwhile, the National Economic and Development Authority (NEDA) estimates the country could lose up to 2 trillion pesos ($39.8 billion) or about 9.4 percent of its gross domestic product (GDP) this year.
Giving dismal estimates of the unprecedented pandemic impact on the GDP on Wednesday, the Development Budget Coordination Committee (DBCC), noted how it had widened disparity from the 5.9 percent growth achieved in 2019.
The inter-agency body comprising the government’s economic managers said in their statement, “These adjustments reflect the Duterte administration’s priorities of saving lives and protecting communities, while providing support to vulnerable groups and stimulating the economy to create jobs and support growth."
The committee added, "These revised assumptions will also allow the government to operate with a more realistic and prudent fiscal stance as it flags the downside risks to the economy and the fiscal program for the rest of the year.”
However, the DBCC is optimistic of a strong rebound in 2021, expecting growth to hit 7.1 to 8.1 percent.
The committee explained, “Timely implementation of a well-targeted recovery program, alongside efforts of the private sector, will mitigate the impact of the Covid-19 pandemic. Such a program will help the country regain confidence, attain higher economic growth, and restore employment rates to pre-crisis levels.”
In a statement to the media Tuesday Philippine central bank governor Benjamin Diokno said given the unprecedented collapse of the global economy, Moody's Investor Service has still maintained its investor-grade credit rating of Baa2 for the Philippines.
"It is actually a vote of confidence on the country's strong macroeconomic fundamentals and the way the Philippine government is managing the coronavirus pandemic. As I said before, the once in a lifetime Covid-19 crisis hit the Philippines from a position of strength. It has ample fiscal and monetary space."
The bank governor expects any contraction this year to be less severe compared to most economies in the world. "In fact, barring a second wave of infections, I expect the Philippine economy to have a strong rebound, estimated at 7.8 percent, in 2021," he said.
However, some economists have warned that the country might slide into a recession this year as household consumption, the country’s main economic driver, has taken a big hit.
Fitch Solutions, the research arm of credit-rating agency Fitch Ratings Inc., sees the country contracting by minus 2.0 percent for 2020 due to a significant slowdown in domestic activity.
It expects consumption to be vulnerable as the grim outlook for household incomes and consumer confidence worsens.
The economy of the country in the January-March quarter saw a contraction of -2.0 percent due to the catastrophic eruption of the Taal volcano, as well as the implementation of a sweeping lockdown for the entire Luzon Island in mid-March. It was also the Philippines’ first contraction since 1998.
The government and analysts are also expecting the economy to contract in the second quarter as severe quarantine restrictions were enforced for the full month of April.
Meanwhile, Metro Manila, Cebu City and Laguna province - all coronavirus high-risk urban centers - would remain in lockdown for another two weeks till the end of month while quarantines would be lifted for the rest of the country.
However, the extended shutdown would be less severe as some companies and factories would be allowed to reopen and various modes of public transportation would start running again.