The World Bank (WB) sees the Philippines’ gross domestic product (GDP) growing by 4.3 percent this year—slower than previously expected—as COVID-19’s more contagious Delta strain and relatively slower vaccine rollout are taking their toll on economic recovery.
The World Bank’s East Asia and Pacific Fall 2021 Economic Update report on Tuesday showed a lower 2021 growth forecast for the Philippines than the 4.7 percent in June and 5.5 percent last March. The latest forecast falls within the government’s downgraded 4 to 5 percent growth target for the year, unlike at the start of the year when the economic team targeted a 6.5 to 7.5 percent expansion.
While other economies in the region like China, Indonesia and Vietnam already reverted to their prepandemic economic output levels, to be followed by Cambodia, Malaysia and Mongolia next year, it will take up to 2023 for the Philippines, Thailand and Pacific island-states to recover lost ground, the World Bank said.
In the case of the Philippines, Indonesia and Vietnam, the World Bank said it did not help that these countries initially had difficulty in securing vaccine supply to cover their relatively bigger populations.
World Bank East Asia and Pacific chief economist Aaditya Mattoo also pointed out during a press briefing that the Philippines earlier on faced vaccine hesitancy problems.
Mattoo said the Philippines and Indonesia were expected to vaccinate up to 60 percent of their huge populations by the middle of next year.
“This 60-percent [vaccination threshold] is not a magic number; it is a goal, which we think has certain implications for the resumption of economic activity,” Mattoo said.
But more than mass vaccination, Mattoo said the rebound from the pandemic-induced economic slump would involve reforms, for instance, in attracting private-sector investment, such as those being undertaken by the Philippines and Indonesia.
Mattoo was referring to the recent reduction in the Philippines’ corporate income tax rates not only to ease badly hit firms’ tax burden but also to entice new big-ticket investments to set up shop here. The Philippines was also moving to dismantle restrictions on foreign capital in retail trade and public utilities like the energy and telecommunications sectors.
But the World Bank said more social investments were needed to address the pandemic’s long-term scarring effect on peoples’ livelihoods.
“In Indonesia and the Philippines, as many as eight million more people would remain trapped in poverty in 2023 if recovery is not accompanied by inequality-reducing policies,” the World Bank warned.
In the Philippines, the World Bank said that “if growth forecasts hold and household incomes recover with stable inflation, the poverty rate will likely continue a downward trend through 2023” but “the reimposition of stricter community quarantines over extended periods risks slowing down the pace of poverty reduction.”
The World Bank also cited that while a “scaling up of cash transfers helped protect millions of people from the worst economic effects of the pandemic” last year, dole outs “fall short of needs in 2021 in Myanmar, the Philippines, and Timor-Leste.”
“Unlike many other countries in the region, the Philippines increasingly faces a tightening budget constraint,” Mattoo noted, although he conceded that it would be difficult to come up with a perfect mix of support to struggling households and firms, which will be ultimately up to the government to make these “not easy choices.”
“In Indonesia, Mongolia, and the Philippines, firms lost on average at least 40 percent of their typical monthly sales and cut jobs. The failure of otherwise viable firms is leading to the loss of valuable intangible assets, such as supplier or customer relationships and know-how. Surviving firms are deferring productive investments. Unemployment can erode human capital and hurt future earnings. These negative effects on growth are likely to be stronger than any benefits of creative destruction induced by the crisis,” the World Bank said.
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