Strong economic fundamentals will enable the Philippines to withstand the economic shocks brought about by coronavirus disease 2019 that compelled the government to implement a month-long enhanced community quarantine in Luzon, according to the Finance Department.
The department said in an economic bulletin over the weekend the country’s current external position was one of its strengths that could help weather the impact of the pandemic.
It said current account, one of the main components of the balance of payments, “strengthened in 2019 and almost wiped out the deficit as strong earnings were achieved from exports of goods and services and incomes from investment placements and remittances.”
Data showed the current account deficit dropped from 2.38 percent of GDP ($7.879 billion) in 2018 to 0.13 percent ($0.464 billion) in 2019.
“This implies higher reliance on domestic savings than on foreign savings such as foreign borrowing and foreign investment. Domestic savings rose due to improved balances in goods and services trade, and higher primary and secondary incomes of Filipinos,” the department said.
The deficit in the trade in goods and services balance dropped from 7.62 percent of GDP in 2018 to 6.19 percent of GDP in 2019 as imports slowed down on lower capital goods purchases and the country earned higher net receipts from exports of services.
The surplus in income balances rose 7.7 percent, but its ratio to GDP dipped from 9.25 percent of GDP ($30.592 billion) to 9.17 percent ($32.956 billion.
“Earnings from business process outsourcing, remittances inflows and earnings from investments abroad by Filipino citizens accounted for these substantial receipts,” it said.
“The country’s strong fundamentals will enable the economy to withstand economic shocks arising from the coronavirus pandemic which has locked down more than a third of the economy to a state of inertia,” the DOF said.
The Luzon lockdown cut the source of livelihood of 11 million Filipino workers in Luzon, including 4 million in Metro Manila, according to Dr. Cielito Habito, a former economic planning chief and a professor at Ateneo de Manila University.
A study by ADMU economists shows that 4 million of the 5 million workers in the National Capital Region had to stay at home, with only a million still working as part of the skeletal work force.
Habito, who served as director-general of the National Economic and Development Authority (NEDA) under the Ramos administration, said the economy would likely contract this year, as remittances from overseas Filipino workers would likely fall by $4 billion to $5 billion from more than $30 billion in 2019.
He said remittances fuel consumer spending, which accounts for more than 60 percent of the gross domestic product in the Philippines.
Meanwhile, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the economy should be secondary to public health at this time. However, he said the government and the BSP have adequate resources to support the economy, given its high level of gross international reserves and low debt as a percentage of GDP.
Diokno said the government is in talks with the World Bank, Asian Development Bank and AIIB for a $2-billion loan. He said the government could afford to increase its debt-to-GDP ratio from the current 40 percent to 45 percent.
He said this year, the government could also allow the deficit-to-GDP ratio to widen from a band of 3 percent to 3.5 percent to a range of 5 percent to 6 percent.
Diokno also warned against restarting the economy too soon, saying it would be better to do it by May or June instead of April 14 which marks the end of the Luzon lockdown.
Meanwhile, an official of the Makati Business Club said a calibrated lifting of the quarantine period is apparently the “most likely scenario”
MBC president Edgar Chua said in a television interview over ANC the lifting of the Luzon lockdown should be gradual, with manufacturing and BPO sectors allowed to open first, before other establishments such as malls and schools.