Philippines growth leads in Asean but downside risks remain

First, a feel-good prognosis from the World Bank: the Philippines’ projected 5.9 percent economic growth rate this year – although down from the government’s 7 percent-9 percent target – would be the fastest among ASEAN states (topping Malaysia’s 5.8 percent and Vietnam’s 5.5 percent). With a slight dip to 5.7 percent in 2023, it would still be second only to Vietnam’s expected surge to 6.5 percent.

The growth projection is attributed to “sustained public investment and recovering household consumption” even during the COVID-19 pandemic.

Having said that, the WB emphasized that downside risks remain both in the country and in the region, pointing out, in particular, that the income/wealth inequality within the Philippine economy would be long lasting.

Worldwide, economic growth is expected to decline in both the advanced economies and in the “emerging market and developing economies (EMDEs),” which include the Philippines.

By 2023, however, the situation of the two groupings would sharply diverge: all advanced economies would have achieved “full output recovery” whereas the EMDEs would remain 4 percent below their pre-pandemic status.

These projections came from the World Bank’s latest Global Economic Prospects, as reported last Thursday in The Philippine Star and in the Business Mirror.

Meantime, the World Economic Forum (WEF), in its latest Global Risk Report, foresaw prolonged economic stagnation and dire climate crisis impacts as the top risks for the Philippines, this year and going forward. “Risks to economic growth are considerable, including risks from potential resurgence of COVID-19 as new variants emerge,” WEF warned.

Risks from extreme weather events would include loss of human lives, damage to the ecosystems, property damage and financial loss, the WEF said. The climate crisis remains the biggest long-term threat facing humanity, it added, warning that failure to act on climate change could shrink global gross domestic product (GDP) by 6 percent.

Another risk for the Philippines, the group noted, is the unequal access to critical digital networks and technology, which it called “digital inequality.” This stems from the unequal investment capabilities, lack of necessary skills in the workforce, insufficient purchasing power and government restrictions.

Employment and livelihood crises, and failure of public infrastructure were the two other risks with deep socioeconomic impacts for the country, WEF warned. The first would involve deterioration of work prospects and standards for the working-age population – unemployment, underemployment, lower wages, fragile contracts and erosion of worker rights, among others.

Failure of public infrastructure, on the other hand, would be the unequitable and insufficient public infrastructure and services, which would result from “mismanaged urban sprawl, poor planning and under-investment, negatively impacting economic advancement, education, housing, public health, social inclusion and the environment.”

On the issue of income/wealth gap among the EMDEs, the WB estimated that, in 2018, the Philippines had 42.3 inequality rating. This was measured by the so-called Gini coefficient, wherein zero represents “perfect equality” and 100 represents “perfect inequality.”

“The increase in within-country inequality reflected severe job and income losses among low-skilled workers, low-income households, informal workers and women,” the WB noted. Rising debt levels during the pandemic and the price increases in commodities were added factors.

Worldwide, total debt levels rose by 30 percentage points, or 263 percent (?) of GDP in 2020, which the WB said was the biggest single-year debt level increase since 1970. This, it added, was largely caused by foreign and domestic loans availed of by the EMDEs – rendering more than half of low-income countries “in distress or at high risk of debt distress.”

In the case of the Philippines, the Bureau of the Treasury released this week data showing that in December 2021, the government’s total debt stood at around P11.5 trillion. About P8.2 trillion of that came from domestic borrowing through the issuance of retail treasury bonds (RTBs). The government has relied heavily on locally-sourced borrowing more than on foreign borrowings because “the financial system remained awash in cash, while the government wanted to temper foreign exchange risks,” the Inquirer reported last Thursday.

The country’s debt-to-GDP ratio hit 63.1 percent as of end-September, surpassing the 60 percent threshold that international credit-rating agencies consider as manageable level for EMDEs. The Duterte government economic managers had targeted to end last year with a debt-to-GDP ratio of 59.1 percent – which would have been the highest since the 65.7 percent recorded in 2005 (under the Arroyo government).

Yesterday, Fitch Solutions Country Risk & Industry Research, the credit rater Fitch Group’s research arm, projected a 62.9 percent debt-to-GDP ratio of the country this year, which it said would be a tight challenge to the next president to be elected in the May 9 national elections. In a Jan. 12 research note, it warned: “While there is a need to support the Philippine economic recovery given the loss of employment and economic output due to the pandemic, the prioritization of growth over deficit consolidation in 2022 could leave the next president facing fiscal [government revenue-raising and spending] challenges.”

“Government bond investors may become increasingly concerned about the surge in public debt,” Fitch Solutions said, “especially if they believe that further public debt increases are likely. In turn, this could see borrowing costs rise over the coming years.”

Back to the World Bank, the multilateral lending institution surmised that with the rapid spread of the Omicron variant of COVID-19, the pandemic would likely continue to disrupt economic activity in the near term. Besides this prospect, it warned that the notable slowing down in major economies – including the United States and China, the two largest – would adversely affect external demand (exports) in emerging and developing economies.

“The world economy is simultaneously facing COVID-19, inflation and policy uncertainty, with government spending and monetary policies in uncharted territory,” noted WB president David Malpass. “Rising inequality and security challenges are particularly harmful for developing countries. Putting more countries on a favorable growth path requires concerted action and a comprehensive set of national policy responses.”

New challenges to the country’s next government, and to the people, are piling up already.

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Published in Philippine Star
January 15, 2022

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