Philippines in Crisis With Economy on the Brink

Philippines in Crisis With Economy on the Brink

By: Gerelyn Terzo of Sharemoney

In the Philippines, local communities are taking the food crisis into their own hands and are no longer waiting for the government to act. While the Southeast Asian country has earmarked USD 83 million in stimulus aid, only about one-quarter of the funds have actually been delivered to the population of approximately 109 million, nearly 17% of whom are living below the poverty line. The government’s efforts to distribute the funds were stymied by a renewed set of lockdowns amid a spike in coronavirus cases.

President Rodrigo Duterte pointed to the fact that billions in income are being lost daily as people are unable to go to work due to the renewed lockdowns. Some 1.5 million Filipinos have become unemployed as a result of the restrictions in place, with the government placing its harshest lockdowns possible in the Manila metro area and neighboring provinces for a two-week period in April. As a result, businesses in the area were forced to operate in a scaled-down way or even shut their doors entirely. The lockdowns have since been eased to a less severe classification.

Even President Duterte suggested in a recent “Talk to the People” that he was losing sleep over the fallout from the pandemic, saying, “I’m a bit worried about the economy.” Many Filipinos have been left unable to fend for themselves or feed their families in the wake of the pandemic. The community has responded with food drives to help those in need, a number of which have been popping up in various provinces, including Cagayan and Quezon, to name a couple.

Food Crisis

The economic damage, however, is already done. Poverty has become a way of life for many Filipinos, as food prices have soared and hunger runs rampant throughout the country. The Philippines suffered from food inflation of 6.2%, as of March, while more than 20% of the population experienced some type of food shortage last year, more than ever before in the country’s history, and twice where the hunger rate hovered before the pandemic hit, as per a Social Weather Stations poll.

The government’s efforts, which have included USD 100 payments and food parcels, have fallen short. In the interim, “more Filipinos are going to bed hungry,” stated Karl Kendrick Chua, Acting Socioeconomic Planning Secretary for the Philippines, back in February.

Chart - Hunger in the Philippines

Source: The New Humanitarian/Social Weather Stations

Local communities are stepping up, led by Patricia Non, who is behind the Maginhawa Community Pantry, the country’s maiden community pantry. It works as a food bank, providing free food to families without enough cash to buy their own groceries. While hundreds of Filipinos have been lining up at the Maginhawa pantry from the early hours of the morning, the government is now pushing back.

According to local Manila media reports, Non’s pantry was suspended after essentially being blacklisted by the authorities. The police have reportedly accused the organizer of being in cahoots with communists. Non has defended the community pantry, saying she is “saddened” by the accusations and stating, “[The pantry] has no political affiliation for who helps and needs help.” Meanwhile, officials have maintained that while community organizers don’t need permits for their operations, they do need to work with local government offices due to the threat of the pandemic.

Economic Support

In order for the Philippines’ economy to restart, the country will need to get the virus under control so that the restrictions can be lifted. Chief among the ways to do this is the distribution of COVID-19 vaccines. To help, the Asian Development Bank (ADB) in March approved USD 400 million in vaccine financing for the Philippines. It is part of a broader program for governments that requires certain criteria to be met in order to qualify.

The Philippines was the first country to tap into the financing, with Indonesia and other countries in the pipeline. The purpose of the debt facility is to support a fast response, and one way this is accomplished is that the ADB pays the vaccine producers directly rather than relying on the slow and bureaucratic government accounts.

Lessons Learned

The pandemic left some sectors more damaged than others, and the extent to which economies felt the impact depends on their structural composition. As it turns out, the Philippines has an especially large tourism industry, which was one of the most severely hit sectors from the border closings. Even today, people have shown a reluctance to travel until the vaccine is more prevalent.

Kelly Bird, ADB Philippines country director, said in a recent webcast that this means the Philippines will experience a much bigger shock to its economy vs. economies with a higher share of household spending. Worse, the ADB isn’t expecting the tourism industry to recover until 2024. The one wildcard that could accelerate travel’s rebound is if the global population is vaccinated sooner than expected, but as Bird explains, that would be a “big task.”

As a result of the shakeout from the pandemic, structural changes are likely to be triggered in economies like the Philippines. The way this will look is that businesses will rely on and invest more in digitalization and also explore different arrangements for working in the office. The changes are also expected to reach the labor market, which could materialize as less demand for workers in some sectors and an expansion in others.

Bird also warned about the long-lasting impact on unemployment, which could stay elevated for a while. Another possibility is that wages and salaries will fall. Governments, however, are looking at how to mitigate these enduring effects with a focus on training the younger generation to have more marketable skills through apprenticeship programs and business training. They are also exploring ways to ensure income stability for employees during times of economic shocks. One way to do this is through social unemployment insurance, Bird explained.

Kelly Bird, ADB Philippines Director

Source: ADB Philippines/Facebook

The ADB’s Bird also addressed the Philippines’ diaspora, saying remittances were resilient during the pandemic year, shrinking by less than 1%. Most people, Bird said, were expecting remittances to take a much more severe hit, with estimates as high as 20%. Remittances, however, are countercyclical, meaning that when the economy is in a downturn, Filipino workers send home more money to their families. During good times, Filipino migrants take the opportunity to save and therefore tend to send less money home. The expectation is for remittances to grow moderately in 2021 as the economy reopens, according to Bird. The ADB predicts that GDP in the Philippines will expand by 6.5% this year after shrinking 9.5% in 2020.

Cover photo credit: gloverbh222 / Pixabay

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