Economic growth, a question of anchor

All the broadsheets bannered that the Philippines’ second quarter real GDP growth of 11.8% ended the recession here, representing the fastest pace in 32 years. That was a big relief to us because if this momentum is sustained, we should see the revival of business activities, opening of more jobs, and reduction of hunger and poverty in the land.

This was not exactly the whole story.

BusinessWorld’s infographic was most useful to the public’s economic understanding because while the year-on-year growth of 11.8% was truly impressive for its speed, we see a different story when we assess the seasonally adjusted quarter-on-quarter growth. On this basis, the economy shrank by 1.3%. The website of the Philippine Statistics Authority’ (PSA) shows tables and tables of quarterly output in current and real terms that this important analytical fact is lost.

Most telling in this chart is that economic growth seems to be losing steam. We should look at the 11.8% year-on-year growth only in a historical context against the second quarter last year. That period spans one year; that is history. Monetary Board Member Felipe Medalla would be the first to argue that doing so is not very useful. Base effects would be most pronounced. Instead, comparing the second quarter 2021 with the first quarter 2021 actually shows a drop from a positive 0.7% to a negative 1.3%. Such quarterly drops have been quite obvious since the fourth quarter of last year. This data series is cleansed of seasonal factors and hence a fair basis for discerning trends.

Based on the composition of economic growth, we see an uneven pattern. That 11.8% annual growth was vigorously driven by both industry and services but agriculture actually contracted by 0.1%. Demand-wise, investments rose by a whopping 75.5% while private consumption climbed by 7.2%. But public spending declined by 4.9%. Imports more than dampened exports. The key to achieving inclusive, sustainable, and self-sustaining growth is for all sectors and demand components to be contributing in concert. Consumers obviously continue to chill; they remain fearful of malls and eating places. Perhaps only the brave souls dared to remain mobile because many of them needed to work and eat.

While base effects were initially dismissed, they were used to explain the decline in public spending associated with “the roll-out of the largest ever emergency subsidies in the second quarter of 2020.” Fundamentally, this means the government was correct in spending big last year, but decided to retreat this year while the pandemic has not even relented.

The second quarter growth story without considering future risks is already ominous. First half real GDP growth averaged 3.7%. The PSA’s National Statistician Dennis Mapa did for us the math of what to expect for the whole year. To achieve the lower end of the official target of 6%, Mapa explained the economy has to deliver at least 8.2% for the second half of 2021. If we target the high end of 7%, we need to expand by at least 10.2%.

Whether this is doable is very much premised on how we could work ourselves out of this pandemic.

Needless to say, a singular focus on pandemic management is essential. Medical forecasts of the potency and the speed of the Delta variant are telling us we may not have seen the worst yet. Daily incidence could rise by multiples of what we are seeing today in the tens of thousands.

What is happening in various capitals and many parts in the US confirms to us one important lesson and this is the viciousness of the virus. It does not banter with fever or flu, it dispenses lockdowns and deaths.

Community transmission is surging exponentially in the US due partly to lack of mask mandates and pervasive hesitancy to get the jab. The unvaccinated adults are super spreading the Delta variant now even to the children. There has been an unseasonal spike in respiratory illnesses among children. Children from three-week-olds to 17-year-olds have been infected. This is now the case in Louisiana where hospital bed space has further shrunk and the demand for doctors and nurses has multiplied. In Florida, infections have been reported by Johns Hopkins University to have increased 51% over the previous week with 134,506 new COVID-19 cases from July 30 to Aug. 5 alone. Of this, 4,615 children were hospitalized, further overwhelming the state’s health facilities.

If this is happening in the US where children generally enjoy a higher level of nutrition and quality of life, and medical facilities are more robust, this could also happen in the Philippines.

Here, we are still in conversation whether children should be vaccinated because of supply issues. This much we got from the recent pronouncement of the National Immunization Technical Advisory Group (NITAG). Contrary to the press statement of the economic managers that “we are expecting the arrival of over 148 million doses of the vaccine,” this Group insists that “our vaccines are not yet enough” and that children “are so resilient and have stronger immunity.” Therefore, no vaccines yet for the minors among us.

First, the Group should look again into the profile of those infected with COVID-19. They should realize that those who are getting sick represent all age groups, even those younger than 19 years old.

Second, on the supply issue, our economic managers should look into the Commission on Audit’s report admonishing the Department of Health’s (DoH) inefficient utilization of funds amounting to P67.32 billion intended for pandemic response last year. For instance, P11.89 billion for the procurement of medical equipment and supplies and hiring of additional health workers has remained unobligated or undisbursed. Some P42.41 billion for COVID-19 related programs and procurements was instead transferred to various implementing agencies without the required Memorandum of Agreement and other supporting documents.

If these funds were properly spent to cover our fight against the pandemic, more adults would have been vaccinated fast and the Delta community transmission could have been broken. And NITAG could also do the math: if we have minors numbering 15 million and each two-dose vaccination would cost us around $80 or P4,000, we would need around P60 billion, much less than the disputed P67.32 billions of DoH funds.

Third, it is unnecessary to experience what Bangladesh is going through today. Its healthcare system is hopelessly breaking down under the third, deadliest wave of COVID-19 infections. Hospital facilities are bursting at their seams. Less than 5% of the population has been fully vaccinated. But Bangladesh decided to ease lockdown measures the other day to reopen the economy and permit people to report for work. Various establishments were allowed to open. The country has little choice but to save whatever is left of its economy. Nearly 25 million people have been consigned to unemployment and poverty.

Yes, it is sensible for the Philippines to pursue parallel efforts to neutralize the virus and grow the economy — while we can. What we would like to see is for both the 2021 and 2022 budgets to be properly disbursed based on right priorities: health, economy, social services. The preoccupation against drugs and insurgency should be thrown to the back burner unless we want our choices to narrow down to the Bangladesh dilemma.

Finally, it will be a disservice to the Filipino people if we continue to raise their expectations about growth. The Development Budget Coordination Committee’s (DBCC) decision to keep to the original growth target of 6-7% for 2021 is a Braveheart effect. Therefore, our economic managers’ most recent statement that “the DBCC will review the recent economic data and the risks associated with the Delta variant to fine-tune our growth targets and adjust our recovery strategies” should be an opportunity to anchor our expectations and strategies on more realistic ground.

Anchoring our expectations to that rather ambitious growth target actually deprives us of having a foretaste of the potential cost of bungling this pandemic and economic challenges. A good anchor should motivate our health authorities to work harder to tame this virus and our economic managers to ensure the elephant in the room gets whipped.

Diwa C. Guinigundo is the former Deputy Governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was Alternate Executive Director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.

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