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World Bank downgrades Philippine economic outlook over prolonged restrictions, slow vaccine rollout

Washington-based multilateral lender World Bank has downgraded its economic growth projection for the Philippines amid the country's struggle to contain the spread on COVID-19 and failure to veer away from economic restrictions.

In its East Asia and Pacific Economic Update report, the World Bank is projecting the Philippine economy to grow by 5.5% -- a downgrade from its earlier outlook of 5.9% economic growth in its December 2020 Philippine Economic Update. 

This is also slower than the Duterte administration’s economic managers’ forecast of 6.5% to 7.5% rebound for this year.

At a virtual press conference on Friday, World Bank chief economist for East Asia and Pacific Aaditya Mattoo said the Philippines “has been less successful in the region in transitioning away from shutdowns to a more efficient containment strategy.”

Mattoo said the country’s “tough response,” referring to region-wide community quarantines, “has imposed a big cost on the economy without delivering a commensurate benefit in terms of containment of the disease.”

The Philippines has been under lockdown for nearly nine months, after the first restrictions were implemented in March to curb the spread of COVID-19. A general community quarantine (GCQ) has remained in place in Metro Manila and other key areas.

However, new COVID-19 cases saw a dramatic increase, averaging by more than 7,000 new infections a day in the last few weeks.

The surge in new cases has prompted the government to place Metro Manila, Bulacan, Cavite, Laguna, and Rizal under a general community quarantine bubble with a new set of stricter regulations.

From March 22 to April 4, residents of NCR and the four provinces are not allowed to go outside the bubble, while residents outside the bubble are not allowed entry except for purposes deemed by the government as "essential."

'Lagging behind' in vaccine strategy

The World Bank also noted that the Philippines has been “lagging behind” in the region terms of its vaccine strategy.

Data from the multilateral lender showed the Philippines has administered 0.20 doses per 100 people, a cumulative of 216,000 doses administered as of March 17, 2021.

The Philippines is in the lower half of 15 countries in the region in terms of vaccination rollout.

Another challenge for the Philippines, Mattoo said, is vaccine hesitancy among the population coupled with global inequality to access to vaccines.

He added that the country’s “heavily decentralized” healthcare system will pose a challenge to implement the vaccination drive on a large scale.

In terms of stimulus, the World Bank noted that the Philippines is among the countries that are less successful in targeting households that experienced COVID-19–related income shock, as “the share of households receiving assistance does not differ significantly between households that reported a COVID-19–related income shock and those that did not.”

Likewise, the Philippines’ earning and employment losses is at the higher end in the region at 8% of gross domestic income, compared to Vietnam, which is at the lower end of the range, at only 3% of gross domestic income.

Weak performance

In its report, the World Bank said the Philippines experienced the sharpest contraction of output among the largest economies of the region.

“The contraction reflected an uncontrolled COVID-19 outbreak combined with strict nationwide lockdowns and mobility restrictions, a succession of natural disasters, and delays in budget execution which weighed on public investment,” the multilateral lender said.

By end of 2020, output in the four other major economies - Indonesia, Malaysia, Thailand, Philippines - had rebounded but remained on average around 5% below pre-pandemic levels, with the smallest gap in Indonesia at 2.2% and the largest gap in the Philippines at 8.4%, according to the bank.

The World Bank said the Philippines' relatively weak performance is due to its reliance more on prolonged restrictions on mobility rather than an effective test-based strategy.

Last year, the country’s gross domestic product contracted by 9.5%, its worst performance on record since the end of World War II, due to the COVID-19 crisis. 

The multilateral lender said the Philippines, along with Thailand, is
projected to remain below pre-pandemic levels for much of 2022. It projects a conservative growth 6.3% in 2022 and 6.2% in 2023.

Nonetheless, the World Bank said the Philippines is expected to recover in the medium term, contingent on an improved external environment, a successful vaccination program, and the loosening of movement restrictions.

“But prospects are conditional on their ability to inoculate enough people to control risks to public health and the economy,” it said.

To improve the country’s recovery, Mattoo said the Philippines should focus more on testing, tracing, isolation, and vaccines.

“With shutdowns, there is a big trade off with lives and livelihoods. You will hurt livelihoods but you will save some lives. But testing, tracing, you can get a double boost, you contain the disease and also boost the economy because you create greater confidence,” he said.

Too early to make changes

Sought for comment on the latest World Bank projection, Acting Socioeconomic Planning Secretary Karl Kendrick Chua said it's “too early in the year to make changes,” referring to the government’s growth outlook for 2021.

“We alway look at the data to guide our projections,” Chua said.

In a separate statement, the country’s chief economist said that the government has “taken a careful and calibrated approach by focusing on localized quarantines and addressing the sources of highest risk, so that the jobs and livelihood of the far majority will not be affected.”

However, Chua said the recent increase in COVID-19 cases, which is likely due to the presence of mutated and more contagious variants of the coronavirus, warranted an urgent review of the quarantine measures.

He said that after careful analysis of the situation, the Inter-Agency Task Force recommended to the President to retain the general community quarantine status (GCQ) of Metro Manila, and to revert the neighboring provinces of Bulacan, Cavite, Laguna, and Rizal to GCQ, along with imposing additional restrictions and stricter enforcement of health protocols in these areas.

Chua said that instead of reverting to a modified enhanced community quarantine (MECQ) or subjecting the entire country in another lockdown, the IATF decision will allow people to still work and earn a living while we address the spike in cases.  

'Not a prolonged lockdown'

For his part, presidential spokesperson Harry Roque said he does not agree that the country is in a "prolonged lockdown" since the economy has already been reopened.

“Hindi ako naniniwala na nagpo-prolonged lockdown nga po tayo. Sa katunayan po, bukas po ang ekonomiya, maliban dun sa kakaunting mga industriya (I don’t believe that we are in a prolonged lockdown. In fact, our economy has been open, save for a few industries),” he said in a public briefing.

Roque said keeping the economy open is the reason why the government balked at reimposing enhanced community quarantine (ECQ) or modified ECQ.—KBK, GMA News