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Stimulus and scarring

The Philippines needs to tap its available fiscal space to ramp up stimulus spending as the Delta variant of Covid-19 threatens potential recovery, London-based Capital Economics recommended in a webinar.

Capital Economics senior Asia economist Gareth Leather noted that while the recent Covid-19 infections in the Philippines were relatively lower compared to spikes in neighboring Malaysia and Thailand, “cases are starting to take off as well, especially now that the Delta variant has taken place.”

Leather adds that the support extended by the Philippines and Indonesia to sectors badly hit by the crisis was “not aggressive enough, given the size of the shock that these economies have experienced.”

He adds that the fiscal position of both countries were “quite decent – they could have actually done a lot more if they wanted to.

“The danger is they are actually going to harm their economies quite significantly because there hasn’t been enough fiscal support – more businesses have gone bankrupt, and it’s likely to mean that the long-term scarring is going to be much bigger than would otherwise have been the case,” Leather noted.

With sluggish mass vaccination and meager fiscal support to date, the Philippines and tourism-dependent Thailand would suffer the worst economic scarring in Asia, he added.

The Philippines, in particular, fell to its worst post-war recession last year as annual GDP shrank by a record 9.6 percent amid the longest and most stringent Covid-19 quarantine restrictions in the region. While GDP reverted to year-on-year growth of 11.8 percent during the second quarter due to low-base effects, the government expects to return to pre-pandemic output levels by 2022, among the last in the region.

The latest data from the Manila-based Asian Development Bank had shown the Philippines’ war chest to fight the prolonged pandemic amounted to $30.46 billion or 8.63 percent of GDP as of last month. Whether those funds will be used properly remains the question, especially after the Commission on Audit report on the inability of the Department of Health to properly use funds made available that could’ve greatly improved one of the weakest pandemic responses in the region.*

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May 2022
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