Fitch report, PwC survey: Risks and reality


Diwa C. Guinigundo

There is only one way of interpreting the recent observation of Fitch Solutions Country Risk and Industry Research that “there is a risk that policy-making processes will slow as attention is turned to political jostling rather than measures to speed up the Philippines’ economic recovery from the coronavirus disease 2019 pandemic and longer-term reforms.”

The political noise is getting in the way of whole-of-nation efforts to contain the pandemic and revive the economy. If the 2022 budget is delayed, Fitch threatened to further reduce our Short-Term Political Risk Index.

Fitch was particularly anxious about the intramurals within the PDP-Laban because the struggle for control between the President’s camp and those who stand behind Senator Manny Pacquiao is nothing but unsettling. While this is not something unusual considering that the national election is barely eight months away, the timing is very, very bad.

It must be very obvious that the Philippines is in the middle of a war on two fronts, health and economic.

In previous columns, we stressed that this pandemic was not a black swan but a pink flamingo, the “eventuality of a global pandemic was cautioned but ignored several times over the years.” Our own health and fiscal priorities failed to prepare us for resilience.

We also likened this health crisis to the elephant in the room, something that nobody wants to discuss especially when it comes to details about testing, tracing, isolating and treating. Why, even at this point, we were still surprised knowing we have no central data base that would have really enabled granular lockdowns and allow the economy to grow.

Finally, we suggested that perhaps our health crisis is a gorilla in the room, an important crisis, a matter that begs to be discussed but obviously very few are competent to do. How does one squeeze effective health strategies and protocols from non-medical task force? We need people who know science, those who can design systems of monitoring and forecasting to guide public health policies.

If we put in extraneous distractions like party squabbles, we would have the perfect brew for a more protracted health crisis and even more protracted economic breakthrough to pre-pandemic growth levels.

The public’s emerging reaction to the party intramurals is actually shaping against the President and his political lieutenants. Pacquiao with Senator Koko Pimentel are also up against the COMELEC which should rule on the legitimate wing of PDP-Laban before October 8, the last day of filing of candidacy. They would lose time should the ruling be adverse.

This is not the first time that credit rating agencies raised the danger of a distracted government. Last year, Moody’s commented that the manner the drug war was being waged “…could be a risk to growth because of investor sentiment, and investor sentiment has been getting cloudier given the political situation.” We closed the year 2020 with the deepest economic recession since World War II.

There was an important missing element in the Fitch warning. Its report, having been released on September 10, should have assessed the impact of the possible plunder of pandemic-related public money on policy making. Key public officials have been implicated. If opportunity loss is computed in terms of vaccines and other medical supplies and equipment, the incidence and mortalities could have been mitigated. The pandemic did not have to be prolonged and the loss in business did not have to bring the economy to the abyss.

The Senate investigation into possible abuse of public money is also destroying the reputation and popularity of the President and some of his cabinet members. Each day of Senate investigation unearths serious cases of legal transgressions and abuse of political authority.

Fitch was therefore right to say that these political distractions could absolutely stall longer-term reforms necessary to ensure economic and political stability. More reforms are also needed in ensuring good governance in public procurement and electoral exercises.

The effects are now being felt. Even our businessmen are confused.

In the August 2021 survey of 178 CEOs conducted by Price Waterhouse (PwC) with the Management Association of the Philippines, a good 74 percent of the respondents were either very confident or somewhat confident about their revenue growth for the next 12 months. Still some 26 percent were reported saying they were either not very confident or not confident at all. They were more confident over the next three years.

But two data sets of the PwC survey did not square off with the CEOs’ huge confidence. One, between 65 percent and 70 percent of the CEOs believed the lockdowns would result in lower average daily revenues, daily profits, average daily number of customers, average daily number of employees and product utilization. And two, the expected recovery of the Philippine economy is not within this year but within two to three years for the 50 percent of the responding CEOs. Some 23 percent actually believed the bounceback will happen only after more than three years.

What is most surprising is that the number of respondents who said the recovery is expected between one year and two years has actually gone down from 39 percent in the 2020 survey to only 25 percent in the August 2021 survey.

Where did the CEOs extract their confidence?

Are we seeing sunk cost fallacy or forecast illusion?

Either way, it looks like we are already seeing the effects of the Fitch commentary about the possible policy drift due to political distractions.