How will the next govt address Covid, debt and other ‘surging’ problems?

Rene E. Ofreneo - Laborem Exercens

After one year and three quarters of rolling quarantine programs (ECQ, MECQ, GCQ, MGCQ), the surge in Covid cases appears to be subsiding.

The economic toll is terrible—a gross domestic product (GDP)growth rate of minus 9.5 percent in 2020, the worst since the end of World War II.  The quick “V” recovery pathway imagined by Neda middle of last year has become a prolonged “L” curve.  There are no signs that the economy will be back to its pre-pandemic level soon despite the lowering of Alert Levels across the country.

How will the next president and his/her economic team manage a flattened economy and engineer a recovery? In particular, how will the next administration address the other socio-economic problems that have surged since the second quarter of 2020—debt, deficits, unemployment, poverty and hunger?

The national debt of P7.7 trillion in 2019 swelled to P9.8 trillion in 2020, or more than P2 trillion. As a result, the debt-to-GDP ratio of 39.6 percent, the lowest since the 1970s, increased to 54.5 percent end of 2020. In 2021, more borrowings are being recorded.  As of September 2021, the total national debt reached P11.9 trillion, raising the debt-to-GDP ratio of the country ominously to 63 percent. The Philippines is headed today towards a debt-to-GDP ratio of 65 percent or higher by the end of 2021.

How sustainable is the debt situation? This is a troubling question because debt sustainability depends on the sustainable growth of the economy. Meantime, there are other alarming figures, which need to be monitored by the citizenry. These are as follows:

National government debt service is surging. In 2020, the total debt service was P962 billion, with P380 million going to interest payments. In 2021, the total debt service is projected to soar to over P1.5 trillion, and over P2 trillion in 2022 (from Bureau of Treasury web site)—unless there  are major negotiations being made with the lenders on possible debt service postponement.

Under Presidential Decree 1177, an old law enacted during the martial-law administration of President Ferdinand Marcos, the government is mandated to “automatically” allocate a certain amount of the national budget for debt service, a requirement of the IMF-WB-led Consultative Group of Creditor Countries for the Philippines. With the unrepealed PD 1177, the debt service now accounts for at least one-fifth of the national budget.

Surging budget deficit. Due to Covid spending, rising debt service and weakening government revenues from taxes, the budget deficit is also surging. The budget deficit in 2020 reached P1.4 trillion, virtually the same amount of the budget for Bayanihan 1. This 2020 deficit was twice the 2019 shortfall of P660 billion.  For 2021, the deficit for the year is bigger and is poised to put the budget deficit near the dangerous level of 10 percent of the GDP, which means more borrowings!

The surging debt, debt service and budget deficit are clearly worrisome. The country is sitting on a debt bomb. This is the reason why Fitch Ratings downgraded the Philippine credit rating, from BBB to negative. More downgrades mean more expensive loans and bad investment signals for the country.

The way out is for the Philippines to subdue the Covid health crisis and put the country’s economy back towards the sustainable path. But is the country doing well on the health and economic fronts? Available economic data are pointing southward.

On the Covid containment program, there is very little to add to what the mass media have been reporting—disorganized response of DOH at the beginning, questionable system of health governance, mal-developed and ill-equipped health sector, poor treatment of health workers, corruption scandals at PhilHealth and in the DOH-DBM procurement system, and so on and so forth.

Surge in unemployment, poverty, hunger. On the economy, the most distressing developments for the Filipino working population are the surge in umployment, poverty and hunger.

The PSA reported that the national unemployment rate reached 17.7 percent in April 2020, the highest since the end of World War II. In April 2021, the situation improved somewhat, with the unemployment rate declining to 8.7 percent or half of what the PSA recorded in April 2020. However, in terms of magnitude, the number of unemployed was still relatively high—4.14 million, or almost twice the pre-Covid 2.3 million in April 2019. The PSA reported also that there were “employed persons with job but not at work”, numbering 1.1 million. This is related with the lament of trade unionists: hundreds of thousands of workers placed in  “furlough,” who are retained as employed workers and yet are not given any work and are not paid.

The surge in unemployment means a surge too in poverty and hunger. The PSA still has to release data on poverty under Covid. But most studies suggest a doubling of poverty. The SWS, which measures poverty through “self-rated” surveys, puts the percentage of the population claiming to be poor to be around 50 percent. The SWS has also been reporting on the number of families experiencing hunger, which is defined as a situation arising from “lack of food to eat at least once in the past three months.” For April to May 2021, the number of families experiencing hunger was estimated by SWS to be 4.2 million.

So how will the next government address all these inter-related “surging” socio-economic problems? And what if a new and malignant Covid variant from China or Europe emerges and invades the country? How will the next president wage battle against all these “surging” problems?  Resort to more borrowings and plunge the country into deeper uncertainty?

Dr. Rene E. Ofreneo is a Professor Emeritus of the University of the Philippines.

For comments, please write to reneofreneo@gmail.com.

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