NIGHT OWL
The novel coronavirus has disrupted the global economy within just a few weeks. The pandemic has locked down cities, brought travel and tourism to a near standstill and disrupted life in an unimaginable way. What were considered the most mundane activities two months back were now prohibited and basic human conduct is regulated.
There is a growing economic anxiety over the COVID-19 crisis. However, while the road to resilience will be difficult — statistics show that the Philippine economy will survive it. If we do it right, Asian Development Bank predicts in its report “Asian Development Outlook 2020” a strong recovery of 6.5% in 2021.
The Economist magazine, in its April 30 issue, also ranked the Philippines sixth out of 66 selected emerging economies in terms of fiscal strength, despite the negative impact of the COVID-19 situation. Four measures were used to assess the financial strength of each country: public debt, foreign debt, cost of borrowing and reserve cover. Philippines outranked ASEAN neighbours like Thailand (7th), Vietnam (12th) and Indonesia (16th).
This is not surprising considering the “saving for a rainy day” approach employed by the economic team of President Rodrigo Duterte.
Where are we coming from?
According to Department of Finance Secretary Sonny Dominguez, revenue in 2019 were at 16.1% of GDP. This is the highest rate recorded in 22 years. Debt-to-GDP ratio was also at 39.6% — the lowest since 1986.
Philippines also received a credit rating upgrade to BBB+, the highest the country has ever received.
Moreover, according to the 2019 estimate of the International Monetary Fund, the economy of the Philippines is the world’s 27th largest economy by GDP (Purchasing Power Parity). This is one notch higher its ranking in 2018. Under the administration of President Rodrigo Duterte, Philippines recorded a GDP (PPP) of 956 billion in 2018 and 1.03 trillion in 2019 — joining a trillion-dollar club, which included United States, China, India, Japan and Germany.
Build Build Build as a socio-economic solution
The Duterte Administration is now pursuing PH Progreso - a phased and adaptive recovery approach founded on a four pillar economic strategy to ensure that the country is able to get back on its positive growth trajectory. One of its five priority measures is to restart and accelerate the Build, Build, Build program — the country’s boldest, most ambitious infrastructure program in history.
This is in line with ADB’s recommendation of sustained public investment—especially in priority projects under the government’s BBB infrastructure development program.
Since it started in June 2016 — DPWH Secretary Mark Villar reported the completion of 14,670 km of roads, 4507 bridges, 6022 flood mitigation structures, 129,479 classrooms, and 114 evacuation centers.
The multiplier effect of infrastructure investment is well founded.
In his report “The potential macroeconomic benefits from increasing infrastructure investment”, Josh Bivens of the Economic Policy Institute noted that with an output multiplier of 1.5, each $100 billion in infrastructure spending would boost GDP by $150billion and generate employment for about 1 million full-time equivalents (FTEs).
Giovanni Ganelli and Juha Tervala also noted in their IMF report “The Welfare Multiplier of Public Infrastructure Investment’ that “a dollar spent by the government for investment raises domestic welfare by an equivalent of 0.8 dollars of private consumption”.
Based on NEDA estimate, the increase in public infrastructure spending is seen to contribute as much as ₱1.3 trillion to the country’s GDP by 2022 by stimulating production of output in different industries, including the construction sector, land transport, electricity and finance. There is also a positive indirect correlation on trade, food manufacturing and education.
Clearly, Build Build Build is both an infrastructure solution and an effective socio-economic strategy.