THE economy might not escape a recession this year but will bounce back to more than 7 percent growth next year if the coronavirus disease (COVID-19) pandemic is contained in the second half of 2020.
Benjamin Diokno, Bangko Sentral ng Pilipinas governor, said the Philippines will likely follow a U-shaped economic recovery in 2021.
“The domestic economy could slow down in the first quarter of 2020 and is projected to contract in Q2 and Q3 before gradually recovering in Q4 2020,” Diokno said.
On an annual basis, Diokno said the country’s gross domestic product (GDP) is expected to “shrink by 0.2 percent in 2020 before it bounces back to about 7.7 percent as the impact of the government policy support measures gain traction.”
But Diokno stressed that the strong recovery is based on the assumption that the pandemic is contained in the second half of 2020.
He maintained that the Philippine economy might not escape a recession this year.
“But unlike most emerging economies (the Philippines) is starting from a position of strength, and thus, will not risk a debt default as a result of the COVID-19 pandemic,” Diokno said.
“The Philippines is one of the few developing countries that can borrow from multilateral institutions at largely concessional rates,” he added.
He explained that the country’s debt-to-GDP ratio was 40.5 in 2019. With the fiscal stimulus owing to the pandemic, and with the deficit-to-GDP ratio rising from 3.2 percent to 5.3 percent, the debt-to-GDP ratio might hit 47.0 percent, “modest by international standards,” noted Diokno.
He furthered that the Department of Finance has already raised some $6.9 billion of COVID-19 related loans from multilateral and bilateral sources as of April 24, 2020.
Diokno cited that the Philippines was in a sound fiscal and monetary state when the pandemic hit the country.
He said the “budget deficit was modest, the revenue base has been expanded with a series of new tax laws and improved revenue administration and the quality of expenditures has improved with focus on infrastructure spending and investment in human capital.”
He also stressed the country’s unemployment rate was “at its lowest ever” and poverty incidence goals were “surpassed midway through the Duterte administration’s term.”
“The monetary and financial condition of the country was sound and stable. The BSP has undertaken a series of reforms that made the banking industry sound, sufficiently capitalized, and with a lot of buffers,” Diokno said.
“Interest rates have also been cut by 200 basis points, while reserve requirement ratio has been reduced by 600 basis points, since a year ago,” he added.
He also noted the peso remains steady and “is the second strongest currency (next to Japan) among 14 monitored Asian foreign currencies after the COVID-19 pandemic.”
“The strength of the peso might be attributed to the Philippines’ hefty Gross international Reserves (GIR) and its strong economic fundamentals. The GIR is expected to hit more than $90 billion by end-2020,” Diokno said.
