The slow burn that is economic recovery
The struggle is real. (Photo: VOA News)
The World Bank had not-so-lovely news to share with the Philippines with their Economic Update for June 2022. They mention that the local economy would grow slower than what the government initially expected.
The Duterte administration initially forecasted that the country’s gross domestic product (GDP) would grow by 7-8% in 2022. However, the World Bank projected it would only be 5.7%. The usual suspects are the ones to blame for the financial slowdown.
The report said that “Prolonged war in Ukraine and the continuing sanctions on Russia, could further disrupt global economic activity, slow down growth of major economies in the world, and impair trade and financial flows,”.
Kevin Chua, WB senior Philippine economist, noted in a press briefing that “Global commodity prices have increased since January by more than 50% for both oil and wheat.”
Should the global conflict continue, the poverty headcount in the Philippines will increase depending on the commodity. To give an example, a 10% increase in prices of cereals will bring the rate to rise by 1%. That’s an additional 1.1 million Filipinos. As for energy prices, a 10% increase will raise the poverty headcount by 0.3% which is equivalent to 329,000 Filipinos.
Chua also pointed out that China’s ‘Zero Covid’ policy isn’t doing the economy any favors since it “adversely impacts the Philippines as its trade is increasingly oriented towards the Chinese markets.”
Even though the Philippines had a really good first quarter with a GDP expansion of 8.3%, recovery across all sectors is still uneven.
“While most sectors have caught up to their pre-pandemic levels, some such as accommodation, food services, and transport and storage have yet to return to their pre-pandemic output levels in 2019. Moreover, amid the pandemic, smaller firms and firms in these sectors have shown higher rates of closure.” Chua said.
It’s not all bad news though. If the Philippines continues to open up its economic activities with (hopefully) declining COVID-19 cases, more public mobility, and international investments coming in, we could be seeing a light at the end of the tunnel.
A long tunnel
Finance Secretary Carlos Dominguez III says that it will take 10 years before we can see some semblance of a flickering light.
Before COVID-19, the Philippines debt-to-GDP fell to a record-low 39.6% in 2019. At the end of the first quarter of 2022, it shot up to 63.5%. If it were to go back to pre-pandemic levels by 2031, it would mean increasing the share of tax revenues to the economy, while tempering expenditures on non-priority items.
The PH government is confident that it can turn the ship around with the outgoing Duterte administration proposing a Fiscal Consolidation and Resource Mobilization Plan which includes a deferral of income tax reductions scheduled for individual taxpayers and removal of certain value-added tax (VAT) exemptions for senior citizens and persons with disabilities.
Incoming Finance Secretary Benjamin E. Diokno also stated that he has no plans on slowing down the Duterte administration’s very pricey ‘Build Build Build’ infrastructure development program.
Diokno claims that the Marcos Jr. administration will be able to raise enough taxes in order to meet the budget deficit ceiling targets. And that’s just something we taxpayers have to deal with.
