‘Covid likely erased poverty-reduction gains of past 3 years’

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THE coronavirus 2019 (Covid-19) pandemic and the lockdown that placed the economy at a standstill in the past two months may have already erased the gains in poverty reduction in the past three years, according to economists.

In a presentation at the National Academy of Science and Technology (NAST) this week, Ateneo de Manila University Associate Professor Geoffrey M. Ducanes said even with the assistance extended by the government through the Social Amelioration Program (SAP) and private sector, more Filipinos would fall into poverty due to the pandemic.

The pandemic, which was among the major causes of the 0.2 percent contraction in economic growth in the first quarter of 2020, is also the main reason for the possible double-digit increase in April unemployment. This is affecting incomes and causing millions to fall into poverty.

“Covid-19 and ECQ [enhanced community quarantine] have potentially a very large effect on poverty, possibly reversing all the gains in poverty achieved since 2012,” Ducanes said.

“[Based on scenarios with the cash transfers and other assistance, it showed that these transfers] will mitigate the effect of poverty but not fully offset the effect of Covid-19 and the ECQ,” he also said.

Ducanes said the study assumed that the lockdown prevented people from working and that social distancing will impact jobs that require close human interactions, limiting employment options.

Based on data from the 2018 Family Income and Expenditure Survey (FIES) and Labor Force Survey (LFS), Ducanes said household poverty before Covid-19 was at 14 percent.

Without any cash transfers, this could increase to 17.9 percent assuming that 30 percent of the workers lost their jobs during the lockdown for one month to as much as 23.5 percent, assuming 60 percent of the workers lost their jobs for three months.

The National Economic and Development Authority (Neda) survey estimated that around 44 percent lost their jobs during the two-month lockdown.

Applying this to Ducanes’s estimates, the data showed that if 40 percent of workers lost their jobs for two months, this would increase household poverty to 21.2 percent or by 7.2 percentage points.

Poverty gap is also expected to worsen under this scenario from a baseline of 3 percent to a minimum of 4.4 percent and a maximum of 6.4 percent. This means, poor Filipinos will require more funds to even reach the poverty line.

“So possibly more than a 100- percent increase [in poverty gap] which means that not only are there more poor but on average, they are further from the poverty line, more poor and farther from the poverty line,” Ducanes said.

With cash transfers that were perfectly targeted for the poorest 18 million low-income households and 50 percent of the workers who lost their jobs for two months, Ducanes said household poverty incidence would be at 18 percent, lower than the estimate of 21 percent without cash transfers.

The data for poverty gap would also improve to 4.1 percent under the same conditions from the 5.6-percent  rate estimated without cash transfers.

Meanwhile, Ducanes also estimated the impact of higher prices on poverty among households. If there was a 5-percent increase in food inflation, even with the cash grants, poverty incidence would increase to 19 percent; 10 percent food inflation to 20 percent; and 15 percent food inflation, 22 percent.

“If food inflation was 15 percent higher, this would be enough to offset the effect of the Bayanihan cash grant,” Ducanes said.

Coronacoma

As the government releases the results of the April round of the LFS on Friday together with the May inflation report, local economists agree the country’s unemployment rate would likely reach double digit and worsen poverty in the country.

Ateneo de Manila University John Gokongwei School of Management Dean Luis F. Dumlao said unemployment in April would likely reach 20 percent.

Dumlao said year-on-year job losses could reach 6.8 million. This includes as much as 1.5 million unemployed workers in the transport and storage sector and 1.1 million in the accommodation and food services.

“Nobel laureate Paul Krugman calls it ‘corona-coma.’ It’s what happens when parts of the economy are shut down or are in self-induced coma in attempt to minimize adverse effects of the health crisis,” Dumlao told this newspaper.

Former University of the Philippines Dean Ramon L. Clarete told the BusinessMirror that with unemployment expected to increase, incomes will likely decline and more Filipinos will become poor.

Clarete, however, said it is still impossible to determine which households’ income declined and by how much. This makes it difficult to estimate how much of the gains in poverty were erased by the current crisis.

Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang, meanwhile, was more conservative and said the unemployment rate may reach 10 percent in April.

Ang said this was just based on the number of layoffs reported by the government. However, he said, it was better to rely on the official data that will be released today (Friday).

Unionbank Chief Economist Ruben Carlo O. Asuncion, meanwhile, agreed that the country’s unemployment rate would likely be “at its highest” in April due to the ECQ.

However, Asuncion remains hopeful that the gradual reopening of the economy will help recover some of the jobs and poverty gains lost due to the pandemic.

“April unemployment is not encouraging. I do expect unemployment to be at its highest last April because of the ECQ. Since it was a sudden stop of economic activities, poverty reduction efforts may have been significantly affected,” Asuncion said.

Based on the January LFS results, unemployment was at 5.3 percent, one of the lowest in the country’s history. There were a total of 2.3 million Filipinos who were jobless at the start of the year.

In 2018 poverty incidence among population was at 16.6 percent, while for households or 17.6 million Filipinos, it was at 12.1 percent or three million households.

The PSA estimated that the poverty threshold was estimated at P10,727, on average, for a family of five per month in 2018.

Image credits: AP/Aaron Favila



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