‘Lack of fiscal support a drag on Philippines recovery’

MANILA, Philippines — The pace of economic recovery in the Philippines would be the slowest in Asia amid a lackluster fiscal response to the pandemic, with the threat of long-term scarring effects now more visible than ever, an international think tank said.

In its latest economic outlook report for Emerging Asia, London-based Capital Economics said the Philippines would suffer long-term scarring effects especially as the much-needed recovery has stalled anew.

“A failure to contain the virus and lackluster fiscal support means that the Philippines will experience the slowest recovery in the region,” Capital Economics said.

“Fiscal support has been lackluster and looks to remain so, as worries mount over the high and rising level of government debt,” it said.

The country’s outstanding debt has reached an all-time high of P11.07 trillion as of end-May, and yet the economic impact of the pandemic has yet to be fully addressed, it said.

Economic groups have long been questioning the government’s excessive focus on limiting its borrowing threshold at the expense of fiscal stimulus through financial assistance for Filipinos who most need it.

Other international think tanks also emphasized that the Philippines would be needing greater financing moving forward amid the pandemic’s uncertain duration and the economic impact that go with it.

“Business insolvencies, weaker household balance sheets and high unemployment will drag heavily on demand even after the virus has been contained,” Capital Economics said.

The think tank has also turned pessimistic on the second quarter performance of the economy following the renewed outbreak of COVID-19 cases in April that led to the reimposition of lockdown measures.

“New cases have come down recently and restrictions have been gradually eased, but the slow vaccine rollout means there is a risk lockdowns will need to be reimposed in the future,” Capital Economics said.

“So far, just four percent of the population has been fully inoculated, raising doubts over whether the government will meet its target of vaccinating 60 percent of the population this year,” it said.

Add to this is the threat of the more infectious Delta variant, with its spread nationwide likely to be just a matter of time.

“Overall, we expect gross domestic product to still be around nine percent smaller than its pre-crisis trend by the end of 2023 – by far the largest gap in the region,” the think tank said.

Further, Capital Economics maintained that the Bangko Sentral ng Pilipinas would open the door to rate cuts as early as September as the inflation rate has dropped in recent months.

Across Southeast Asia, it said surging infections and slow progress on vaccination meant that COVID-19 would continue to cause widespread economic disruption for many countries until at least the end of the year.

Most countries in the region are seeing record numbers of new infections, prompting tightening of restrictions, with the hospitality and the recreational sectors bearing the brunt of the new measures.

Nonetheless, Capital Economics is hopeful that the pandemic will not have a major impact on the region’s long-term prospects.

It emphasized that slowing productivity growth and less favorable demographics would still cause the growth rate trend across the region to decline after the pandemic has passed.