Lower PHL Infection Rate Augurs Well for Economy
The reproduction rate of Covid-19 in the Philippines has been on a decline for several weeks now, a trend that augurs well for a strong economic recovery next year.
The reduced rate of virus infections is encouraging government and health authorities to recommend the further re-opening of the economy, including allowing hotels to operate at full capacity and lifting the restriction on nonessential outbound travel.
I believe the gradual and calibrated re-opening of the economy, supported by regulatory reforms and technological innovations, will be crucial in the economic recovery, hopefully beginning in the fourth quarter of 2020.
Along with the increased operational capacity of factories, business establishments and public transportation, these measures should help the economy rebound in the October-December period from the drastic gross domestic product contraction of 16.5 percent in the second quarter and 9 percent in the whole first semester.
The third-quarter figure may have not seen a dramatic recovery because of the re-imposition of modified enhanced community quarantine (MECQ) in August, but there are signs the fourth-quarter figure could show a turnaround.
Striking a balance between protecting public health and re-opening the economy, of course, should be the first order of the day. Finance Secretary Carlos Dominguez III, who leads the economic team, concurs with this. For him, implementing health interventions to flatten the curve, preserve and create jobs and steer the economy to a quick and strong recovery must be our main agenda.
Economic managers now look at a full-year drop of 6 percent in 2020, but expect the economy to perform much better in 2021, on expectations the pandemic would be under control by that time, hopefully with the help of vaccines that remain under clinical trials.
The government is also banking on the enactment of the P4.5-trillion national budget for 2021, the Bayanihan 2 law, other reform measures, and ramped-up infrastructure spending under the “Build, Build, Build” program to support growth next year.
As I have written in the previous column, the Department of Public Works and Highways (DPWH) is leading the BBB program through the construction of several projects aimed at decongesting traffic in the capital region.
More recently, the DPWH announced the start of the engineering design for the 32-kilometer Bataan-Cavite Bridge that will cross Manila Bay. Once completed, the bridge will connect Calabarzon and Central Luzon without passing Subic-Clark-Tarlac expressway, North Luzon expressway and Edsa, reducing the travel time between the two regions to 40 minutes from five hours.
The P175.7-billion ($3.6 billion) bridge, supported by the Asian Development Bank, is a priority project under the BBB program that aims to boost the country’s long-term economic growth through increased public infrastructure investments.
It will also help transform the regional economies of Cavite, Bataan and other provinces through improved connectivity, new economic opportunities and jobs, according to the ADB.
These projects are generating thousands of construction jobs that will help communities, where workers live, recuperate from the crisis. Thus, this is not the time to be pessimistic about the economy amid the many challenges. On the contrary, we should appreciate every silver lining that comes our way.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno himself believes the worst is over for the economy when the Philippines started to reopen. The projected recovery is being supported by benign inflation, a strong external position, low debt ratio, remittances, appreciating peso, and the stable banking system.
Mr. Diokno expects the inflation rate to be manageable within a range of 1.75 percent to 2.75 percent this year and, 2 percent to 4 percent in 2021 and 2022. An adequate supply of food, following the implementation of reform measures, has led to the low-inflation regime this year despite the supply shocks we experienced earlier in the year because of the lockdown and border restrictions.
The Rice Tariffication Law, which reformed the rice sector, helped improve food security while providing rice farmers better support. The National Economic and Development Authority has noted that the policy allowed 110 million Filipinos to have access to affordable rice, especially the poor who spend as much as 30 percent of their food budget on the staple.
The country’s economic fundamentals have remained solid despite the damage wreaked by Covid-19. The Philippines has a comfortable external payments position, with the gross international reserves climbing to an all-time high of $100 billion. The peso is strong and has appreciated by more than 4 percent against the US dollar since the start of the year to its highest level in four years. The local currency’s appreciation is supported by the balance of payments surplus, made possible by narrowing trade deficit and a rebound in remittances in recent weeks.
To make economic recovery felt by more Filipinos, we should focus on helping small entrepreneurs and businesses cope with the new business environment. The ADB in a report estimated that micro, small, and medium-sized enterprises represented 97 percent of all enterprises and 69 percent of the national labor force from 2010 to 2019 in Southeast Asia. MSMEs also contributed an average of 41 percent to the gross domestic product over the same period.
ADB President Masatsugu Asakawa has asked Southeast Asian countries to expand investments in digital infrastructure and ensure equitable access to technology. Experts said the pandemic has led to the faster adoption of digital technologies and the transformation of the labor force.
Supporting the digital needs of businesses, along with the calibrated re-opening of the economy and sustained infrastructure buildup, will hopefully translate into better economic activities in the fourth quarter and beyond.