Finance Secretary Carlos Dominguez III said Saturday the economic contraction posted in the first six months of the year could have been worse if the government did not increase government spending.
The Philippine economy as measured by gross domestic product (GDP) shrunk 16.5 percent in the second quarter, its worst performance on record since 1981. This brought the first half contraction to nine percent.
In a statement, Dominguez said Metro Manila and other urban centers were on strict lockdown in the three months leading to June to prevent the spread of COVID-19, which has unleashed an unprecedented health and economic crisis across the globe.
The Finance chief said, “Without continued and increased public-sector spending, especially on infrastructure, public health and social protection, the first-semester GDP would have shrunk by a total of 11.5 percent, 2.5 percentage points more than the actual 9 percent.”
Government expenditures during the first semester of 2020 were up by 27 percent year-on-year, increasing to P2.01 trillion compared to P1.59 trillion during the same period last year.
“We are not alone in our struggles, although the unique fiscal and macroeconomic strengths with which we entered 2020 will continue to provide us with solid footing as we confront our economic challenges,” Dominguez said.
The Finance Secretary added that the government’s three-pronged strategy against COVID-19 involves a fiscal stimulus package, a recalibrated national budget for 2021, and continued massive investment in infrastructure.
“The Congress' Bayanihan to Recover as One measure or Bayanihan 2, which includes targeted support for unemployed individuals and the hardest-hit strategic industries, hurdled second reading in the House of Representatives this week,” he said.
“The proposed P4.506-trillion ‘Reset, Rebound and Recover’ budget for 2021, as briefly presented by Budget Secretary Wendel Avisado during the [Development Budget Coordination Committee] briefing, focuses on priority spending areas that will strengthen the economy’s recovery from the pandemic,” he added.
The budget also includes further buttressing of the healthcare system, ensuring food security, enabling a digital government and economy, and helping communities cope and prevail in these challenging times.
Dominguez, however, emphasized the need to ensure that the country has enough fiscal resources for a protracted fight against COVID-19.
“When Senator Pacquiao trains for a fight, he prepares for 12 grueling rounds. As there can be no knock-out punch that cuts our fight short before a vaccine is developed, the government’s ability to sustain the fight depends on our fiscal stamina. We have the resources necessary to endure this challenge, but we must also conserve our resources for succeeding rounds of this fight,” he said.
The Finance chief said the economic recovery in the third quarter following the calibrated reopening of businesses since the end of May is expected to proceed at a “steady, yet moderate phase,” more so after President Duterte made the tough, but necessary decision this week to reimpose a two-week moderate ECQ (MECQ) to further boost our healthcare capacity amid a virus resurge.
He added that in the short run, the two-week MECQ in Metro Manila and most of Calabarzon this August would negatively affect livelihoods, production, and household consumption.
But if the government and its private sector partners manage to use the two-week timeout to beef up healthcare resources and prevent further COVID-19 spread, the return of the more stringent lockdown measures this month would be positive for the long-term goal of beating the pandemic.
“As I have said earlier, the whole world is learning how to dance with this lethal virus: two steps forward and one step back,” he said.
“The economy is in good shape to mount a strong recovery soon enough, given the positive metrics such as benign inflation, a peso that is the strongest currency in Asia, and high-investment grade credit profile that has enabled us to borrow money here and abroad—at relatively lower cost—to fund our programs for COVID-19 response and other requirements.”
The Finance chief also cited the improvements seen in the manufacturing sector as the economy began to gradually reopen. For instance, the value of the production index for the month of June showed a slower annual decline of 22.5 percent compared to the 31.2 percent decrease in May and 41.2 percent in April.
While the volume of production index in June shrank by 19.3 percent year-on-year, the decline was slower compared to May’s drop of 28.5 percent and 38.8 percent in April.
Meanwhile, the overall manufacturing capacity reached 73 percent in June, up from 72.4 percent in May and 70.5 percent in April.
The country’s total merchandise trade further eased its negative trajectory in June with a slower decline of 19.9 percent, after a steep 35.3 percent contraction in May and 59.5 percent in April.
This slower decline in the country’s trade performance signals the resumption of economic activities, according to Dominguez.
“These improvements are reflected in increases in tax collections by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The BOC was able to surpass its July collection target by 5 percent due to higher import volumes, while the BIR also reported above-target performance in June, which signals rising economic activity,” he said. — DVM, GMA News