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‘Remarkable’ rebound seen this year

THE WORST is over for the pandemic-hit Philippine economy, and a “remarkable rebound” is expected this year, the central bank chief said on Tuesday, adding that the current accommodative monetary stance is sufficient for a revival in growth.

At the same time, Moody’s Investors Service raised its growth outlook for the Philippines to 7% this year from its 6.2% forecast given in September, but expects the country to be among the laggards in the Asia-Pacific region in terms of recovery.

“The worst is behind us. The recovery phase has begun,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno told the Reuters Next conference, citing “green shoots” such as improvements in remittances and foreign direct investments.

Speaking ahead of the release of the 2020 GDP data on Jan. 28, Mr. Diokno said he also expected “solid” growth in the December quarter and “double-digit” growth in the second quarter of this year.

He added that “the current policy is sufficient to carry us through” after the economy suffered its first recession in nearly three decades in 2020.

Meanwhile, Moody’s said pandemic-related restrictions will prevent the Philippines, along with India, Hong Kong and Singapore, from recovering to 2019 output levels this year.

In an e-mailed response to BusinessWorld, Christian de Guzman, senior vice-president of Sovereign Risk Group at Moody’s, said the Philippine economy is expected to grow by 7% this year, well within the 6.5% to 7.5% estimate by economic managers. This also matches Moody’s 2021 gross domestic product (GDP) growth forecast for Malaysia (7%) and is faster than Thailand’s (4%) and Indonesia (4.7%) but slower than Vietnam (7.2%).

Moody’s expected the Philippines’ GDP to have contracted by 8.7% in 2020.

Mr. De Guzman said the outlook for the Asia-Pacific region this year is still clouded by downside risks from rising coronavirus disease 2019 (COVID-19) infections.

“The vaccine helps to balance out those risks. It does lead to perhaps some improvements in consumer confidence as compared to what we’ve seen before,” Mr. De Guzman said.

The debt watcher noted the Philippines and Indonesia are among lower-rated economies that saw greater local transmissions despite moderate assessments for governance. This is in contrast to Vietnam where policy effectiveness kept infections low despite its lower score for institution and governance strength.

Local infections rose 1,524 on Tuesday to bring the total to 491,258. Active cases reached 23,532.

“In sovereigns where infection rates remain relatively high, such as in India, Indonesia and the Philippines, the pressure on governments to tamp down the pandemic has sidelined progress on fiscal reform,” Moody’s said.

Moody’s affirmed its sovereign rating of “Baa2” with a stable outlook for the Philippines in July last year, citing this reflects the country’s strong fiscal position in recent years will safeguard it from the impact of the virus.

VIRUS RESURGENCE
Meanwhile, a possible resurgence of coronavirus infections in the country could “expose the limited funding allocation towards the pandemic response and lead to a wider budget deficit,” Fitch Solutions Country Risk & Industry Research said in a note on Tuesday.

In a commentary titled “Healthcare Funding Shortfall in Philippines’ 2021 Budget,” the think tank said only P221 billion or 4.9% of the P4.5-trillion national budget has been allocated for the Philippines’ pandemic response.

“Given that the Philippines has experienced the second-highest fatality rate in the South East Asia region, after Indonesia, and the discovery of more contagious strains in the UK and South Africa, the Philippines remains vulnerable to another surge in COVID-19 cases,” it said.

“We expect the Philippines to lag behind other Asia-Pacific economies in securing vaccines for the population, which will mean risks remain elevated through 2021,” it added.

Last year, government spending for the pandemic response and economic stimulus was criticized for being relatively small compared with its Southeast Asian peers.

The Philippines’ COVID-19 response package is estimated at $21.645 billion or 5.9% of GDP last year, based on a policy database compiled by the Asian Development Bank (ADB). This placed the country’s package as the sixth largest in terms of the total amount but the fourth smallest in terms of its size relative to economic output.

“We highlight the risk that the economy could face with further COVID-19 outbreaks that divert funds towards the pandemic response and suppress revenue, thereby worsening the fiscal outlook and the budget’s ability to drive a recovery,” Fitch Solutions said.

The National Government’s budget deficit reached 7.5% of GDP last year, more than double the 3.4% fiscal gap ratio in 2019 but slightly below the 7.6% cap set by economic managers. — Reuters, Luz Wendy T. Noble and B.M.Laforga

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