Uphill

The best recovery forecast I have seen so far came from an international bank. It foresees the Philippine economy growing by 9 percent in 2021.

That growth number, at first glance, might seem impressive. But that is year-on-year growth calculated from our 2020 economic performance. The kindest estimate says our economy will contract by -8 percent this year. In the second quarter, our economy contracted by a dizzying -16.5 percent. Even in the throes of the debt crisis, our economy did not contract by as much.

Only our long-neglected agriculture sector posted any growth in the first half of this year. The farm sector, even if it did not grow by much, will have to anchor any expansion. We will have to move faster on the reforms such as the amendments to the Agri-Agra Law that will direct bank funding up the agricultural value chain.

One of our key growth drivers, tourism, has been devastated by the pandemic. No one foresees tourist flows anywhere in the world to jump back to pre-pandemic levels in the next five years.

Our tourism industry brought consumer demand to far-flung islands and remote localities. That magnifies the loss brought about by drastically reduced tourism flows. There is little in those areas that can quickly substitute for tourism in terms of job creation and revenues.

The POGO industry (if it may be called such) expanded dramatically in the years preceding. Now there is news that many of them are closing shop. Real estate experts forecast we could lose as much as 10 percent of leased space if the POGO industry continues to dwindle.

Over the past few years, POGO enterprises drove up rents and cornered all available office space in the metropolis. These heavily taxed enterprises contributed a rapidly rising share of government revenues. Tens of thousands of direct and indirect employment depend on the robust incomes from the gambling outfits.

But China has been trying to stifle online gambling and not only because of the moral hazards. These operations allowed large sums to flow out of the Chinese economy, including monies probably made through corrupt means.

Our hardy migrant workers are doing a yeoman’s job propping up domestic consumer demand. Hundreds of thousands of our migrant workers, including sea-based workers, lost their jobs in the global recession. Nevertheless, remittances continue to grow, albeit at a much slower pace. This can only mean that our migrant workers who still hold jobs are sending home more of their incomes than before. They are called to sacrifice even more for their families.

By some estimates, about a quarter of our small enterprises have been forced to shut down. Some of them might bounce back when some growth returns to the domestic economy. But the longer the quarantines remain, the greater the likelihood the business closures will be permanent.

It is not a small thing that when the pandemic struck, the Philippines benefitted from a strong fiscal position. We had just achieved the highest credit ratings ever. Our tax effort had climbed to 16.5 percent in 2019. We worked down our debt-to-GDP ratio to just 39.5 percent. We accumulated the largest foreign reserves we ever had.

All these factors were useful in helping us secure emergency financing at least cost to support our budget in the darkest hours. The emergency loans we incurred to support the fight against COVID-19 will likely bring up our debt-to-GDP ratio to over 50 percent.

Of course, government revenues will take a hit, reflecting the hit the larger economy took. Our budget deficits will continue to mount. We will need to borrow money farther down the road to cover the shortfalls as well as to fund a stimulus package. We have already been warned: new taxes will have to be introduced late in 2021 or in 2022.

Happily, the credit rating agencies are maintaining our current high ratings. Fitch Ratings, for instance, notes that general government debt is still below the BBB median. That will enable us to borrow at lower costs and access the international bond market.

So far, our stimulus response has been prudent. The Bayanihan II Act has been described as “fiscally responsible.”

There is peril at throwing money wantonly to revive the economy. It could prove unsustainable. Our economic prospects continue to be dictated by a virus. We do not know how long we will have to fight this health emergency. It is better to keep our powder dry.

Right now, we are expecting a resurgence of infections in many, mostly northern, countries. Israel, after excellently bringing down infections at the onset, now had to close down its economy a second time. The infection rate is quickly rising in many European countries, some of which have reintroduced some restrictions the past few days.

While the virus continues to create uncertainty, we need to move ahead and begin reviving our economy. That, to be sure, will be an uphill effort.

As we seek to identify areas where economic growth is possible, we need to be aware that we are doing so in the midst of an unprecedented global recession. Our export markets are shrinking. Our traditional sources of investments are coping with bankruptcies themselves.

We need to be aware that the damage wrought by this pandemic cannot be repaired quickly enough. In our case, we might need the better part of a decade just to return to where we were in February this year.

But the difficult prospects we confront also present us an opportunity to reconfigure the national economy. We must aspire not only to recover. We have to reinvent.