Budget shortfall seen to widen this year

MANILA, Philippines — Japanese investment house Nomura said the Philippines is likely to post a wider budget deficit this year as the national government tries to soften the impact of the coronavirus disease 2019 (COVID-19) pandemic.

Euben Paracuelles, senior economist for Southeast Asia at Nomura, said the country is set to book a wider budget shortfall of 4.5 percent of gross domestic product (GDP) instead of 3.7 percent of GDP this year.

President Duterte signed Republic Act 11469 or the Bayanihan to Heal as One Act wherein the government has earmarked a sizeable P200 billion or 1.1 percent of GDP to fund cash handouts to eligible households.

About 18 million poor families are expected to receive between P5,000 and P8,000 for the months of April and May amid the month-long enhanced community quarantine imposed in Luzon to prevent further spread of COVID-19.

“The Philippine government, in our view, has rightly prioritized providing the needed help to the poor and has acted relatively swiftly,” Paracuelles said.

The economist said the key risk is the possible extension of the lockdown amid the still-rising confirmed cases in the Philippines.

“We believe an extended lockdown would not only require an improvement of the distribution of relief measures but also more funding. We therefore continue to believe that, similar to what other countries have already done in the region, a sizeable supplementary budget (apart from reallocations of the existing budget) will have to be passed that is designed to provide more aide to the poor as well as measures to support the broader economy,” he added.

In the absence of social safety nets and if fiscal space or implementation capacity of support measures is limited, the economist said the restrictions may not be adhered to strictly or may need to be relaxed at some point, undermining efforts to contain the very outbreak that the lockdown was meant to quickly address.

Nomura said the Philippine economy would slip into a recession with a GDP contraction of 1.9 percent this year if the COVID-19 pandemic drags into the second half.

The country’s GDP would grow by 0.8 percent in the first quarter before contracting by 2.3 percent, 3.2 percent and three percent in the second, third and fourth quarters, respectively under a bad scenario.

Under this scenario, Nomura said monetary and fiscal policy responses are unable to keep businesses solvent, while the world experiences a full-blown credit crunch, banking crises and a continued market meltdown in the second half.

There is a large, permanent loss in output, featuring a persistently high unemployment, while new waves of infections and the developing world becomes the new hotbed for the virus under the bad case.

Under the bad scenario, he added the social distancing measures locally are extended over the second quarter, with the month long enhanced community quarantine lasting until May and expanded nationwide.

Under its base case scenario, Nomura further lowered its GDP growth forecast to 1.6 percent instead of 4.7 percent this year.