Of substance and spirit
Diwa C. Guinigundo
In the late 1970s at the then Central Bank of the Philippines, we would at times be assigned the task of consolidating the draft write-ups on the various sectors of the Philippine economy. Under its charter, the monetary authority is mandated to submit quarterly economic report to the President of the Republic and to both houses of Congress. This is on top of the annual report. Being assigned to do this was something every staff economist tried to avoid. As lead economist, he would have to draft the introduction and the concluding part which the senior management particularly the governor would always read thoroughly, and invariably, overhaul.
But very few would read the reports in their entirety.
The text alone would run up to over 50 pages. Our sub-text, that which kept us going, was that the reports were to document the events and the drama, the policy response of the authorities. Looking back, what we did was to ensure that no troll could revise what really happened after the war when the old Central Bank started in 1949, to this day. Researchers could also refer to them to check whether indeed the martial law years were the golden era of the Philippine economy. Being official government publication, the reports should be expected to have been written with some drift. The consistency of the text with the tables and charts will vet the narrative.
To ensure the BSP reports are understood by every Juan, Congress required BSP to produce a laymanâs version starting 1993.
We had all this in mind when the Pampanga Chamber of Commerce and Industry invited us last week to brief them on the current economic and financial developments and what we could expect in the future. To them, we posed three questions that we ourselves answered. A revised and abridged versionâŠ
First question: What is the economic situation of the Philippines today?
It is difficult to agree with the President in his inaugural State of the Nation Address that he knew it in his mind, heart, and soul that the state of the nation is sound. Given all the difficulties confronting our country today, from sugar to onion, we would look at this more as a posturing than anything else.
Yes, we recovered with impressive real GDP growth rates of 8.2 percent and 7.4 percent in the first and second quarters of 2022, respectively, but it remains to be seen whether that should shepherd us back to pre-pandemic levels by the end of this year.
We experienced recession for two years of the pandemic because it locked down the economy. Our pandemic management was weak. As fuel supply has been affected by the Ukraine-Russian conflict while the other oil producers are not really world-friendly, fuel prices have been averaging $100 per barrel. With disruption in fuel and food, inflation has been acting up again. For July alone, inflation stood at 6.4 percent, bringing the average inflation for the first seven months of the year at 4.7 percent, breaching the two-to-four percent target and closing in on the BSPâs inflation forecast of five percent for the year.
Inflation is a great disequalizer. While everyone is hit by high prices, the poor and the middle class are the ones doing the heavy lifting because their income is mostly fixed and the share of food and basic commodities whose prices have risen the most in their daily expense is highest.
Worse, unemployment and underemployment during the peak of the pandemic reached their historic highs. At the end of June 2022, unemployment was at 6.0 percent and underemployment at 12.6 percent, or nearly three million Filipinos were out of job while 5.9 million employed Filipinos continued to search for additional hours of work, or additional job. Poverty and inequality could only get worse.
It was brave for SONA to reiterate the commitment to âBuild Better Moreâ when the current DBM Secretary admitted that our fiscal space is shrinking. We donât have enough revenues to fund infra and social services â unless we realign the budget, or tax more or we borrow more, or we do all.
Public revenues have sunk while expenditures soared due to the high pandemic cost. As a result, the budget deficit rose from only â±660 billion in 2019 to â±1.4 trillion in 2020 and â±1.7 trillion in 2021. For the first six months of 2022 alone, the deficit reached â±674 billion, or 6.5 percent of GDP.
Therefore, heavy public borrowing was unavoidable in the last two years and a half. NG debt before the pandemic aggregated only â±7.7 trillion. At the end of 2021, the government incurred â±11.7 trillion, or around â±4 trillion additional borrowing in just two years. As of June 2022, the government had further incurred additional borrowing of nearly â±1.1 trillion, ending the first half at â±12.8 trillion or some 62 percent of GDP.
It is difficult to say we are in a fundamentally sound economic condition when the NG is forced to borrow huge amount of money that we would have to service anyway just to support economic recovery. Nothing patently bad about public borrowing but its use must be judicious in all respects and its trend declining, rather than increasing, relative to our income.
No one can deny that Covid-19 continues to resurge. Economic scarring in both education and the labor market could also be a big obstacle to sustainable business activities. Poverty and income inequality have worsened, and that is bad for growth. Given the missteps we have seen so far, and the numbers as they stand today, we may need time to say otherwise.
(For next week, second and third questions)