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Focus on health; not spend more for relief and COVID-19 containment

In these last two months, the country has seen the worst spike in cases and deaths since COVID-19 was declared a global pandemic. For March and April combined, the Department of Health (DoH) reported 393,075 new cases and 3,915 fatalities. March saw the highest number of new monthly cases, only to be immediately surpassed in April. As of this writing (April 30), there are now 73,908 active cases and a total case count of 1,037,460.

These figures are staggering and should convey the sense of urgency in combating COVID-19. The data unequivocally support the need to continue the implementation of community quarantines. Now, more than ever, we must employ the most aggressive and effective strategies against COVID-19.

Furthermore, our political and economic structures and institutions must be rearranged to support vulnerable households, mitigate the resulting social and economic harm, and promote a “new normal” where people can engage in sustainable economic activity with minimal health risk.

Unfortunately, this has not been the case.

The enacted National Government budget for 2021 seems to have been formulated on a business-as-usual approach; and while it was understandable to rely on budget reallocation measures (Bayanihan I and II) to respond to an unforeseen health crisis, these adjustments should have already been proactively incorporated into the 2021 General Appropriations Act (GAA).

While some funds were allocated towards vaccine procurement, there remains much to be desired in terms of funding the pandemic response and recovery strategy. For one, the government signaled its reliance on the altruism of the private sector to procure these vaccines, when vaccination is essentially a public good. Furthermore, not enough public funds have been allocated towards vaccine storage and logistics; health human resources and information systems; social protection and social amelioration; and the restructuring of the economy (mobility and transport, telecommunications, education, etc.).

For the very immediate response, however, the importance of the various forms of ayuda (help or hand-outs) cannot be understated. Ayuda does not just function to mitigate the adverse economic effects but is a necessary enabling mechanism for families to comply with health protocols and quarantines.

The false tradeoff of health versus economy has muddled the discussion of reopening the economy. This framing is not particularly helpful as health and economics are contingent on each other during this pandemic. While maintaining quarantines to safeguard the health of the community will impose some economic costs, hastily reopening establishments without first containing the pandemic will worsen the long-term prospects of recovery.

Households face long-term health consequences amidst lingering unemployment, poverty, and hunger; but it is unlikely that employment, growth, and investor confidence will return while the threat of a highly contagious virus looms large. Investors and consumers alike will see an effective pandemic response as a positive signal, while an ineffective response will trigger fear and negative expectations. The countries that have best managed COVID-19 are also the ones projected to secure strong economic recovery.

The structural problems of poverty, inequality, and job instability have ailed the country long before COVID-19. However, this health crisis has served to expose these ills more profoundly. The appropriate response is not to “go back to normal,” but rather to implement a new and better normal. This involves a whole-of-government approach and structural changes to the economy.

Furthermore, the idea that we should simply rely on individuals to live with and manage their own risks would be for terrible policy. Individuals have bounded rationality and are prone to overestimate their own ability, while underestimating both the probability of transmission as well as the magnitude of the individual and societal costs.

This is again borne out by experience: countries that took a more laissez faire approach were quickly overwhelmed by community transmission. Even a small minority of individuals engaging in irresponsible behavior (e.g., super spreaders) will wreak havoc to society and undo the incremental progress we make. If we allow individuals to freely go back to normal in the hope that herd immunity will soon be achieved, we will bear the cost of thousands of preventable deaths and an even greater number who will suffer from the life-altering effects of the disease.

Despite the need for an aggressive public sector response to COVID-19, our economic managers wave the flag of fiscal responsibility.

For example, the historic debt crisis of the Marcos regime is cited as a cautionary precedent to avoid overspending. While the Marcos debt crisis does serve as an instructive experience, the economic lesson should not be that government deficits must be avoided at all costs. We must disabuse the notion that deficit spending and debt are always bad. In the context of Marcos, the debt was burdensome not because of the size of the debt itself, but because debt was incurred to finance corruption and unproductive government spending. The overall failure of institutions and lack of productive investment combined with the political crisis led to the deep economic crisis during the Marcos regime.

Deficit spending is an important tool that governments can utilize to respond to economic crises. An unprecedented economic shock in the form of a global pandemic certainly demands a substantial response. If the fiscal stimulus is not sufficiently large and strategic, we are likely to face an even deeper economic downturn and suffer the effects of long-term joblessness and chronic poverty.

Notwithstanding the fact that public deficits have been the norm for decades now, the country has had a steadily improving revenue effort and declining debt-to-GDP ratio. Thanks to sustained economic growth, the pursuit of key tax reforms, and the upgrading of the country’s credit rating, we were in the best fiscal position in (pre-COVID) decades. Despite this, we are well below our peers when it comes to the magnitude of policy measures to combat COVID-19.

Our economic managers have taken the responsibility to oversee the government’s financial situation in order to meet the country’s economic needs. There is currently no greater or more pressing need than to minimize the suffering this pandemic has wrought, and to quickly arrest its long-term impact. Besides, what good is fiscal space if not to fund a strong government response during this once-in-a-lifetime health crisis?


AJ Montesa is a research associate of Action for Economic Reforms.

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