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The Fiscal Quarter that was a Nightmare for the Philippines

In the second quarter of 2020, the GDP of a pandemic-stricken Philippines shrunk by 16.9 percent.

In the second quarter of 2020, the GDP of a pandemic-stricken Philippines shrunk by 16.9 percent.

In the second fiscal quarter of 2020 (Q2 2020), the GDP of the Philippines shrunk by 16.9 percent. It would be a harbinger for the country’s worst economic year since 1947. The developing country’s overall economic output contracted by 9.5 percent year-on-year, a harsh indicator encapsulating many of the hardships that the pandemic brought – lost jobs, disrupted services, shuttered businesses, widespread poverty, and hunger.

If you’re new to reading my articles, I’d like to welcome you to the second in my series called, ‘Cherry-Picked’, a reading series where I literally cherry-pick a data point and build a story behind it. Whether that qualifies as journalism or not, I hardly care at this time. My purpose is to try to give my own insights (which are not necessarily insights of a subject matter expert) while I do my best to provide context that adds more interest to the reader.

You don’t have to read the first article to follow this one or the next, but just in case you’re interested – here is the link to the article preceding this.

The Philippines’ GDP shrunk by 16.9 percent in Q2 2020

Going back to the 16.9 percent GDP shrinkage, it seems such a devastating contraction for any economy. By comparison, other countries shrunk by this much during the second quarter of 2020:

  • United States: -31.4 percent
  • Japan: -28.1 percent
  • India: -7.5 percent
  • Indonesia: -4.2 percent
  • Australia: -6.3 percent

More data is available online if you’re curious about other countries, but from these five examples it’s easy to say that the Philippines was around the expected territory of the sudden economic effects of COVID-19. When you look at the annual rates though, it seems like the Philippines was worse off:

  • United States: -3.5 percent
  • Japan: -4.8 percent
  • India: -8.0 percent
  • Indonesia: -2.1 percent
  • Australia: -0.3 percent
  • Philippines: -9.5 percent

Again, I am acknowledging my very act of cherry-picking which figures I choose to present here. Let’s mention for a moment that in 2020, the United Kingdom’s GDP contracted by 9.8 percent, and at the other extreme China grew its GDP in 2020 by 2.3 percent (which is way lower than the 6-to-8 percent it had been used to, but the fact remains that its GDP grew instead of shrinking during a pandemic year).

The annualized GDP growth rate, especially for 2020, seems to be an indicator of how well (or how awful) a government was able to respond to the COVID-19 pandemic. Did the government go overboard on its restrictions to businesses? Did it unnecessarily close some borders which were vital to trade? Did it fail to stimulate the economy by not providing enough handouts to consumers to boost spending?

All these questions, I don’t have an economist’s mind to answer – instead, let me provide my honest perspective.

A Country Limited by Centralization

If there was one other thing that the Duterte administration advocated about early in its era, aside from The War on Drugs, it’s transitioning the Philippine form of government from a centralized republic, into a federal form of government. Draft constitutions were presented to Congress by lawmakers, mayors who were aligned to the administration were running around the country talking about the benefits of federalism, and ‘federal maps’ showing the Philippines subdivided into federal states circulated online, leaving Filipinos who found them confused, and wondering why their province was lumped with others whose residents spoke a different dialect.

Non-advocates (because the term anti-federalists sounds too harsh) made it a point to tell everyone that it wasn’t the form of government that was the problem with the Philippines – it was because of the way things were run – unresolved cases of corruption, nepotism in public office, red tape and inefficiency in delivering services, etc.

At the time of this writing, we are in the last few months of the Duterte Administration, and the Philippines is as much centralized as it was, before Duterte assumed the presidency. It wasn’t his fault that the country never transitioned to a federal government, nor could you pin all the blame on him for not improving the autonomy of local governments.

But for 2020’s worth, the Philippines was a country limited by centralization – Covid mandates and quarantine classifications came from one national task force, budget for aid and supplies came from the one Congress which passed acts of appropriation, and throughout 2021, Covid-19 vaccines came from one airport which are then distributed to patiently-waiting cities and municipalities who could hardly procure any of their own.

Son of Nene Pimentel who authored the Local Government Code, Senator Koko Pimentel is one of the well-known advocates for federalism and de-centralization in the Philippines.

Son of Nene Pimentel who authored the Local Government Code, Senator Koko Pimentel is one of the well-known advocates for federalism and de-centralization in the Philippines.

Overdependent on Tourism

The 16.9 percent GDP contraction is of course an overall picture of the country’s devastation, but how did Tourism do? We know that tourism took a monumental hit during the lockdowns of 2020, and for the Philippines, inbound tourism suffered a decline of 77.9 percent. This was equivalent to a decline of 467 billion pesos (9.1 billion USD) from what tourists spent the year before. That 9-billion-dollar loss would equate to 2.5 percent of the country’s overall GDP.

Supporting numerical evidence aside, my impression as a Filipino citizen is that the country’s economy is overdependent on tourism. It may directly only account for a mere 2.5 percent, but tourism expenditure causes a chain reaction in boosting other sectors of the economy. Tourism boosts the food-serving industry, as well as retail (who would want to buy a new travel bag in a pandemic year), both of which suffered during 2020. Many businesses in the country are set up with tourism at the very top of mind:

  • Local governments apply for reclamations in order build hotels, resorts and casinos;
  • Foreign cuisine restaurants pop up everywhere to cater to foreigners, especially to Chinese, Japanese and South Koreans (not to mention the Western crowd that looks for Asian cuisine);
  • And business parks/economic zones are set up to be financially friendly to foreign investments, encouraging businessmen and executives from foreign countries to pay a visit when they can.

A Wish List for Future Disasters

It will take some time before we wrap up and compile all the lessons we learned during the pandemic. After all, we are still in it. Regardless, I deem it necessary to come up with a wish list (perhaps an unachievable one at that) for future disasters so that the economy and the people within won’t have to suffer so much. Yes, the 16.9 percent GDP contraction was an indicator for the totality of suffering, and hopefully it doesn’t happen anymore, but there are ways to cushion the blow:

  • Make Healthcare Affordable or Free – to some extent, healthcare is already free because of Universal Healthcare, but some services still cost a lot. Without insurance, a simple doctor’s consultation can cost between 500-1,000 pesos (10-20 USD) and keep in mind that daily minimum wage in the country is below that, at 320 pesos.
  • Empower Regions or Provinces to Make their own Decisions – should local governments be able to refuse imposing the face shield mandate? Yes, you heard that right – it's a regulation on top of the national mask mandate. Also, local governments can’t enter into an agreement to procure Covid-19 vaccines without the national government being a party to the contract with the supplier.
  • Enact Unemployment Insurance Laws – there’s virtually no unemployment insurance in the Philippines, hence the 5,000-peso handouts when Covid-19 caused mass layoffs.
  • Accelerate Public Transportation Infrastructure, Fast – the jeepney modernization program is ongoing, and some railway projects are coming soon to key cities. The country is way, way behind the rest of the world in public transportation.
  • Be More Realistic with Regulations – for most of the pandemic, Covid tests were required (as they should) for inter-island travel around the country. The problem wasn’t with the requirement of testing, but its accessibility. An RT-PCR test, often the only accepted type of test, cost a whopping 3,000 – 5,000 pesos (60 to 100 USD). On minimum wage, a single RT-PCR test can cost more than half a person’s entire monthly salary.

No government is perfect, and while the public perception is still divided on whether the government acted well in its pandemic response, these suggestions assume that we live in a perfect world where systemic factors can’t hold things back. A GDP contraction of 16.9 percent is something no country ever wants to experience, and it is an awful reminder that life can take a turn for the worst especially when you’re not prepared.

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