Weighing in on recovery approaches

Putting money where it will best work has never been more important than now, when the country kick-starts the economy back to health. The latest prognosis by government is a contraction of two to 3.4 percent this year, but some think tanks fear this may worsen up to seven percent.

How best we are able to manage the second half of the year will be crucial to how quickly the Philippine economy rebounds next year. The biggest threat continues to be the presence of the infectious coronavirus, which epidemiologists warn could return later in the year.

We cannot afford a second lockdown this year, something that the government still considers as an option should a resurgence of the virus infection happen.

For this matter, thus, the best defense would be fortifying our health system. This means improving our testing, tracing, and treatment capability to nip any new infections, and prevent it from overwhelming our hospitals.

Getting results from tests within just hours should be a target. We need to have a good army of contact tracers in place. Isolation facilities have to be defined and ready, especially for those who cannot return to their homes to safely self-quarantine.

Finally, we need to have hospitals ready to treat patients without fear of contaminating their staff. This also means looking at the health of hospitals that reportedly are now on the brink of bankruptcy.

The readiness of the health system to fight a virus spread is necessary even after a cure for the novel coronavirus is found; this will allow us to avoid lockdowns that may be caused by future viruses equally or more lethal.

We need to spend more on this, because this will give the country the biggest bang for the buck.

Opening opportunities for work

With this done, we can confidently focus our attention at coaxing the economy back to normal, or more correctly, a  normal mode while the virus continues to be a threat.

First on the list would be jobs. Resuming infrastructure projects under the Build Build Build program should help open up work opportunities that are now badly sought by those laid off because of the lockdowns. Opening this up is much better than increasing dole-outs.

Many of the big businesses will likely be able to keep their employees on their payrolls through the rest of the year even with expected reduced incomes from weaker consumer spending, but micro, small, and medium-sized companies – or the MSME sector – will not.

Repatriated overseas working Filipinos, downsized call centers, and a collapsed tourism and travel industry will only worsen joblessness. These are all related to the global effect of the pandemic, something that is beyond our control.

Because of this, getting the MSME sector back on its feet will be crucial. The government must now come up with a successful plan to allow smaller companies and businesses to survive, including extended loan repayment terms and loans at lower rates to cover operating bills that have piled up during the quarantine period.

MSMEs accounted for about two-thirds of the country’s employed before the contagion. Of the MSMEs adversely affected, around half a million were forced to close and may not likely be able to resume anytime soon. This represents close to a million jobs lost.

All of the above, plus other recovery steps that the National Economic Development Authority (NEDA) and Congress are looking at, will cost more money. Already, some P1.17 trillion had been allocated under the Bayanihan to Heal as One Act.

Harmonize recovery approach and funding needs

NEDA, as part of the economic team, has proposed the Bayanihan II Act, which calls for an additional funding of between P130 billion to P160 billion during the post lockdown era.

Additionally, NEDA is recommending bringing down net income taxes to 25 percent starting in July, from the current 30 percent rate. This puts aside the previous recommendation of the finance department to gradually reduce income taxes by two percent every two years until 2029 in exchange for the rationalization of tax incentives.

Under this proposal, too, current tax incentives will be left untouched up till nine years for current businesses; the proposed “rational” incentives, thus, will be applied only to new investors, but mindful of the need to encourage them to choose the Philippines. We need new investments.

The House of Representatives, on the other hand, has proposed a new law appropriating up to P1.5 trillion to be spent over the next three years on projects that will directly provide funds to local governments related to health, education, agriculture, roads, and livelihood.

The DOF, as expected, is not keen on supporting this measure because of the currently weak government revenue collections. It bats for a more prudent approach given that most businesses are also allocating significantly less money in their post-COVID survival strategies.

Let’s hope that the executive and legislative are able to resolve quickly their differences in the recovery approach and the huge gap in proposed spending.

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