Severe

The numbers do paint a distressing picture. The Philippine economy is among the worst hit countries in this year of the pandemic.

We will close this horrible year with the economy contracting between -8 percent and -10 percent. Our economy has never taken a hit as severe as this one. The scarring will be deep and many of the jobs lost will likely never return.

In the midst of a pandemic, the Philippine economy may be compared to a person with numerous co-morbidities. Those will make us vulnerable to every infection and magnify all the symptoms.

The Economist magazine puts the Philippines at the top of the list of severely affected countries. The assessment takes into account not only the extent of decline in GDP but also labor market vulnerability, the structure of the economy, health related belief scarring, financial imbalances and the efficacy of policy offsets.

The National Statistics Office of Moody’s Analytics puts the Philippines as second only to India in the severity of GDP contraction compared to 2019. We were worse than India in the third quarter 2020 numbers.

In the ASEAN region, the Philippines and Indonesia are about tied when it comes to declines in exports for the first nine months of this year. We have the worst declines in industrial production as of October 2020 among the Western Pacific economies.

As for returning the economy to its pre-pandemic peak, the Philippines is expected to linger in the doldrums far longer than anyone else in the region. China bounced back to its peak in Q2 2020. Taiwan and Vietnam bounced back in Q3 2020. South Korea, Australia and Indonesia are expected to bounce back in Q2 2021. New Zealand, Malaysia and Japan bounce back in Q4 2021. India is expected to bounce back Q1 2022.

The Philippines will be the laggard in this race to recover. Our economy is expected to bounce back Q4 2022.

We will not only be the last to recover economically. The country, along with Singapore, will be among the last to acquire COVID-19 vaccines.

According to the Duke Global Health Innovation Center and Moody’s Analytics, countries such as Canada, the US and the UK have vaccine purchase agreements that will deliver dosages many times the size of their populations through next year. Many poor countries, the Philippines included, will not have enough to contain the spread of infections over the next two years.

Because of a stupid provision in our law that prohibits government from making a pre-payment for anything, we can expect to have vaccine supplies only by the second quarter of next year – and even then, too few to make a dent. The first vaccine dosages we will be able to administer are those donated by Australia from its surplus orders. Our vaccine czar estimates the vaccination program will stretch from two to five years before any sort of herd immunity is achieved.

Why are we in this pitiful state?

It is easy to assign blame on bureaucratic inertia or incompetence. But the general weakness of our economy and governance has been many decades in the making.

The onset of the pandemic unveiled the weakness of our health care system. While the country exports thousands of health care professionals every year, we do not have the capacity to deliver preventive care to the grassroots. The last time we had a major vaccination program (against dengue), it produced a calamity that only heightened vaccine hesitance among our people.

As I pointed out in the previous column, we have an educational system seriously mismatched with the skills the economy needs moving forward. It is a system that produced substandard graduates, guaranteeing high unemployment and many missed business opportunities.

Many years ago, our brilliant legislators, thinking it would avert a public backlash to the VAT measures they had to pass, decided to raise corporate tax rates as a means to appease public opinion. As a result, we had the highest corporate tax rates in a region competing for investments. Therefore, we received far less investments than everybody else.

Compounding that, we enshrined in our Constitution a negative list for foreign investors. That limits the scope of investments we could receive. That has proven to be a serious handicap in the race to attract new technologies and new capital.

For decades, we have been buying and selling the same tracts of land. It is an exercise that is inherently inflationary. We call it the land reform program. It resulted in breaking up our farms into small “family-sized” plots against all the wisdom of economies of scale. That grossly undermined agricultural productivity, proved a hindrance to mechanization and guaranteed poverty for the “beneficiaries.”

The outcome of this has been a largely stagnant agricultural sector and a shortage of land for industrial, commercial and residential use. The latter inflated the costs of housing, leaving a yawning shortfall of about 4 million housing units. The tedious process of “conversion” resulted in a shortage of land that hampered growth of our manufacturing sector.

For over two decades, we have had a land use plan under legislative consideration. It would have rationalized land use and curtailed settlements in hazard zones. Congress never acted on this.

We have restrictive (but thoroughly politicized) labor regulations that protected those already employed but never encouraged new employment. We have a chaotic tax incentives system that preserved inefficient industries while discouraging new competitors.

In a word, our economy has never been nimble. Therefore, it will take us longer just to get back to where we were pre-pandemic.