“Last two minutes!”
These are familiar words to Filipino basketball fans who grew up in the 1980s. In a trademark deadpan tone, the coliseum barker would announce the final stretch of the ballgame, and the opposing teams would passionately slug it out for the win—both figuratively and literally.
Similarly, with just a year to go, the current administration is in the “last two minutes” of its ballgame, where a reversal of fortunes is evident due to the second-half onslaught of Covid-19. In the first half, the Philippines proudly sailed ahead in Southeast Asia, with annual GDP growth rates of 6.9 percent in 2017, 6.3 percent in 2018, and 6.1 percent in 2019. However, in 2020, which was the start of the second half, economic activity contracted by 9.6 percent—the deepest dive among Southeast Asian economies. Commentators exclaim, “Tinambakan na tayo!” (“Points have already piled up against us!”)
Indeed, travel restrictions and prolonged lockdowns have taken a massive toll on businesses, jobs, and incomes. The government, understandably, resorted to these measures to preserve the most precious productive asset of the economy: Filipinos themselves. After all, economists would say, “Walang ekonomiya kung walang tao.” (“There is no economy if there are no people.”)
So, what should be done to spark an endgame rally that will, hopefully, bring the economy back on its feet? Economic managers clearly spell out a three-point gameplan: 1) rolling out vaccines more efficiently, 2) easing restrictions more carefully, and 3) employing a recovery package more effectively. It might be helpful to expound on each point.
On the first point, vaccination will be crucial in restoring both business and consumer confidence, which have sharply declined from where they were three years ago. In fact, according to Moody’s Analytics, the Philippine Business Confidence Index has decreased from +39.33 in Q2-2018 to +1.40 in Q2-2021, while the Philippine Consumer Confidence Index has decreased from +3.82 in Q2-2018 to -30.86 in Q2-2021.
Unlike previous crises in recent history, which were financial in nature and hampered mostly the supply side, the current crisis affects not only the supply side but also—and, perhaps, even more adversely—the demand side. Lockdowns have forced many businesses to close down and consumers to limit spending. Of course, when businesses fold, people lose jobs and incomes, so aggregate spending on output decreases. Lower aggregate spending results in more business closures, which lead to more job and income losses, which, in turn, lead to even lower aggregate spending. This vicious cycle can be reversed if confidence is restored through a more efficient vaccine rollout.
On the second point, the easing of restrictions can be done in parallel with vaccination. By now, the dire economic consequences of a shotgun approach to disease outbreak management should be clear to everyone. This time, the country needs to use a more careful, surgical approach in identifying geographical areas and economic sectors where restrictions can be relaxed. Also, as sharply noted by McKinsey & Company, effective, credible, and consistent communication about health interventions by leaders will help both public and private sectors plan accordingly.
On the third point, there is a compelling need to maximize the efficacy of government spending to jump-start economic recovery. In theory, although debt has grown from P6.09 trillion in 2016 to P9.79 trillion in 2020, if the gathered resources are channeled wisely such that the induced income growth outpaces debt growth, then the economy can eventually recover and repay its debt. Austerity measures to reduce the debt pile (i.e., higher taxes and lower government spending) might only worsen the economic slump.
So, where should the stimulus money go? Indeed, there is a need to invest more in testing, tracing, treatment, and vaccination, so that business and consumer confidence can be restored. There is also a need to channel investments to economic activities that create the most benefits for the domestic economy through the widest network of linkages. Agriculture might be a good investment destination due to three factors: 1) its proven resilience during the pandemic-induced recession, 2) its prevalence in the safest geographical areas for economic resumption, and 3) its strong interlinkages with the rest of the economy.
It might also be good to channel investments to the digital economy, which has been fostered by the “new-normal” way of doing things, such as retail sales, meetings, events, education, entertainment, payments, and more. An upgraded logistics system with much wider reach will be crucial. Last-mile logistics could also provide wide employment opportunities, even in the countryside.
In sum, having a solid gameplan for an endgame rally is one thing, while executing it is another. Still, with the clock winding down, Filipinos should shout, “Never say die!”
Dr. Ser Percival K. Peña-Reyes is the Associate Director of the Ateneo Center for Economic Research and Development.