Even as the authorities refine the community quarantine to make them more restrictive, the government and policymakers should move quickly to mitigate the economic fallout from the pandemic. Like the outbreak, the economic crisis will be both global and domestic in scale.
In the United States, for instance, Treasury Secretary Steve Mnuchin warned that unemployment could spike to 20 percent. US President Donald Trump was quick to downplay that as the worst-case scenario, but last week 70,000 Americans filed for unemployment benefits, an increase of 33 percent from the previous week. Before the outbreak, the US jobless rate was at a 50-year low.
In China, about 5 million people have lost their jobs in the first two months of 2020. That country’s unemployment rate was reported at 6.2 percent in February, its highest on record. Together with the US, these two countries are the biggest economies of the world.
While there has been no unemployment report yet linked to the pandemic in the Philippines, it is safe to say that there will be a major impact. The community quarantine, meant to arrest the spread of the coronavirus, also has many businesses shuttered and movements of people and goods severely limited.
On the bright side, many local governments, some conglomerates and a few individuals are collaborating to deliver food items to depressed communities, as well as to workers at checkpoints and elsewhere on the frontline. Several utilities, finance companies and other private firms have also announced grace periods for payments of select obligations.
On the national level, the Department of Finance announced last week a P27-billion stimulus. Also, the central bank slashed interest rates and President Rodrigo Duterte called for a special session of Congress. He is asking for a supplementary budget to address the unexpected problems caused by the pandemic.
Regrettably, some of the pronounced mitigation measures have been insensitive to the private sector, if not blatantly populist. For instance, calls for the early release of the obligatory 13th month pay may be appropriate to large employers, but a burden to micro, small and medium enterprises (MSMEs).
MSMEs account for 99.7 percent of registered enterprises in the Philippines. They employ about 70 percent of the labor force and account for about 30 percent of manufacturing sales and valued added. Worse, the difficulties facing MSMEs are likely similar to those facing the self-employed and people working in the underground economy.
Maximum fiscal response
To address the looming economic crisis, we support calls for a maximum fiscal response from government. Recently, the Management Association of the Philippines, along with several chambers of commerce and many other business organizations, issued a statement calling for a stimulus package equivalent to an amount that would raise the deficit to 5 percent of gross domestic product (GDP).
Even if GDP slows down to 4.5 percent, that stimulus proposal would come out to P281 billion. The joint statement explained, “Assuming GDP growth slows to 4.5 percent (GDP: P20 trillion), a 5-percent deficit will be P1 trillion. Subtract the programmed deficit of 3.6 percent (P720 billion), and there is room for a P281-billion fiscal stimulus program.”
Using the same formula, the business community estimated that the stimulus package would be P271 billion if the GDP slows down to 3 percent. Before the pandemic, the Philippine GDP was forecast to grow at least 6 percent this year.
The statement added, “Funds may also be sourced from savings or mandated savings of government agencies — except DoH (Department of Health), LGUs (local government units) and other frontliners in the current crisis — and government-owned and -controled corporations to support all vulnerable sectors (informal worker, micro and small enterprises, etc.).
“This massive stimulus will save lives and protect our society, but will not trigger alarm bells in the credit rating and global investment community, as the Philippine debt/GDP measure is only likely to rise from 41.5 percent to 44.2 percent. It was almost 70 percent about 15 years ago.”
We urge lawmakers to keep this joint statement in mind when they convene for a special session. Besides containing the pandemic, ensuring economic recovery is now Job No. 1.