The Asian Development Bank (ADB) has downgraded its growth forecast for the Philippines this year, as it took into account the recent implementation of tighter quarantine restrictions in the National Capital Region and adjacent provinces.
In its Asian Development Outlook 2021, ADB forecasts the Philippine economy to grow by 4.5 percent in 2021 and 5.5 percent in 2022.
The outlook for this year has been downgraded from the 6.5 percent growth projection released in December and is below the government’s target of 6.5 percent to 7.5 percent for 2021.
Kelly Bird, ADB Philippines country director, said the latest projection is seen as the “floor” estimate, which means the ADB sees the economy growing by “at least” 4.5 percent.
“For other economists and banks… there’s a wide range of estimates … from four percent up to… seven percent this year….That simply reflects the heightened uncertainty about how the pandemic will unfold globally and domestically,” Bird said.
Bird, however, said the ADB is 90 percent confident that the growth rate would be 4.5 percent or higher.
According to Bird, the downgraded projection are mainly because of the implementation of tighter quarantine restrictions due to the recent surge in coronavirus disease 2019 (COVID-19) cases and that private investments are expected to remain subdued this year.
“This forecast… includes the reimposition of the enhanced community quarantine and the modified one, and it also factors in a delay in the reopening of the economy. That’s why we’re treating this as a floor on our forecast for this year,” Bird said.
Bird said fiscal and monetary policies remain accommodative to support recovery for 2021 and public spending, and household spending and exports will drive growth this year.
Challenges remain, however, including uncertainties over the course of the pandemic and the emergence of new coronavirus variants across the globe.
The ADB said the Philippines’ COVID-19 vaccine rollout may suffer from global supply shortages in the short term, and local community quarantines could be extended to curb the spread of COVID-19.
“There are upside and downside risks and it’s really about the rollout of the vaccination program. The downside is that we’re experiencing global shortages of vaccines, and these could delay the Philippines’ national vaccine rollout. This is not unique to the Philippines, but a lot of other developing member countries, middle income countries are experiencing the same problem,” Bird said.
Bird also mentioned the Mandanas ruling which will come into effect next year as another downside risk, as the national government is required to transfer significant amounts of revenues to the local governments and that may affect the implementation of some public programs.
“When expenditure functions are being transferred to local governments, there’s always that teething period where they’ve got to kind of revise the budgets, they’ve got to bring in new staff, new skills to implement. There is always a risk that on the ground that there will be some delay in project or program implementation, that’s kind of a natural outcome of transferring functions to local governments,” Bird said.
The ADB said inflation is forecast to rise to 4.1 percent in 2021, up from 2.6 percent in 2020, due to rising global commodity prices and other supply-side factors. For instance, the African swine fever has resulted in disruptions to the pork supply in the Philippines.
Inflation is expected to ease to 3.5 percent in 2022 as government takes measures to address supply-side pressures, the agency said.
The current account surplus is forecast to narrow to 2.5 percent of gross domestic product in 2021 and 1.8 percent in 2022. Merchandise exports are expected to increase with the rise in global trade, as imports, especially capital goods, rebound to support public infrastructure development, the ADB said.
Bird noted the pandemic’s possible medium to long term negative impact on employment.
“It’s correct, (as the government said) that employment numbers have recovered to the pre-pandemic level, but what we’re seeing is that the composition has changed. The concern for us is that the employment that’s been generated is in the informal sector so it’s self employment, and these are generally the less stable employment activities, earnings are unstable, they’re not always covered by the social system, they don’t generally have access to skills training, so they are lower quality jobs. That’s the concern, that lower quality jobs have been created, not the quality jobs,” Bird said.
Bird said those considered as quality jobs, particularly those wage and salary jobs in the non-farm, private sector are still down from pre-pandemic levels.
“We’re concerned that with this pandemic there may be some longer-term scarring effects on that segment,” Bird said.
Meanwhile, Bird said ADB’s lending program for the Philippines this year will amount to $3.9 billion or around P189 billion.
Broken down, this includes $1.75 billion for the South Commuter Railway Project and $180 million for the Metro Manila Bridges Project.
The program also includes $238 million for the Davao Public Transport Modernization Project, $96 million for the Sustainable Palawan Tourism Development Project, and $400 million for the Local Governance Reform Program.
The ADB is also providing $400 million in loans each for the Facilitating Youth School-to-Work Transition project and the Building Up Implementation and Local-Level Drivers for Universal Health Care program.
Finally, the list includes the recent $400 million loan that was approved in March for the Second Health System Enhancement to Address and Limit COVID-19 project that aims to assist the Department of Health in procuring and ensuring delivery to the country of vaccines certified by the COVID-19 Vaccines Global Access Facility and bilateral vaccine suppliers that meet the bank’s Asia Pacific Vaccine Access Facility eligibility criteria. – Angela Celis
