The -8.3% growth (contraction) in gross domestic product (GDP) in the fourth quarter of 2020 and even worse -9.5% growth for the whole year is the result of unwarranted fiscal conservatism last year. Yet the economic managers continue to bury their heads in the sand and still refuse a meaningful and socially-sensitive fiscal stimulus for the economy in 2021.
It is however never too late to correct mistakes. A significant increase in government spending in areas with high social and economic multiplier effects will go far in alleviating suffering and spurring more rapid recovery. Rather than import-intensive big-ticket infrastructure projects, the economic managers can give more emergency cash subsidies, increase help to small enterprises to support job creation, and expand social services. Paying more attention to agriculture will also increase productivity and help lower food prices.
The -9.5% GDP growth in 2020 is almost double the contraction originally projected by the Development Budget Coordination Committee (DBCC) of around -5.6% (-4.5 to -6.6%) before this was adjusted to -9% (-8.5 to 9.5%) in December. The fourth quarter results cast doubt on achieving not just the rebound-driven -6.5 to 7.5% projections in 2021 but especially the fantastical 8 to 10% growth in 2022.
The economic managers are erroneous in claiming that the trade-off is between health and the economy. The real trade-off that defines the administration’s pandemic response is between creditworthiness and the welfare of poor and low-income households.
As soon as the pandemic hit, it was already clear that the economy will face the worst economic shock in its history. Concerned legislators, civil society and people’s organizations proposed an expansionary fiscal stance as early as April and May last year. The economic managers were however closed-minded from the beginning and had preserving creditworthiness as their topmost concern.
Millions of poor and low-income Filipinos and the economy are paying the price for their insensitive credit rating-obsessed narrow-mindedness. There would not have been the 23.7 million additional hungry Filipinos, 4.5 million additional poor Filipinos, and 2.7 million additional unemployed Filipinos reported by the government if fiscal policy had been more aggressive.
The continued refusal of the economic managers to meaningfully stimulate the economy prolongs the suffering of millions of poor and low-income Filipinos. The response also has to consider how the majority of Filipinos are in the informal sector including huge numbers of self-employed.
Not spending for recovery
There was no significant increase in government spending in 2020 upon the pandemic. The Php3.69 trillion in national government disbursements in the first 11 months of 2020 was an 11.6% increase from the same period the year before. This is less than the average 13.6% average increase over the same comparable periods in the period 2017-2019 which saw increases of 10.1% (2017), 24.1% (2018), and 6.7% (2019).
Contrary to economic managers’ claims, there will also not be a significant increase in government spending in 2021. The Php4.5 trillion 2021 national budget is only 9.9% bigger than the 2020 General Appropriations Act (GAA). This is smaller than the historical annual average increase of 11.1% for the past four decades. This is even smaller than the 23.6% and 13.6% budget increases of the Duterte administration in 2017 and 2020, respectively.
The largest part of the 2021 budget is also mechanically still for Build, Build, Build (BBB) infrastructure projects despite the drastically changed social and economic priorities upon the pandemic. The justification that this will create 1.7 million jobs is moreover spurious. Under BBB, infrastructure spending increased significantly from the equivalent of 3.9% of GDP in 2016 to 5.4% in 2019. Yet over that same period, construction jobs for instance only increased by an average of 258,000 annually from 3.4 million employed in 2016 to 4.2 million in 2019. Even assuming jobs multiplier effects, claiming to create “1.7 million jobs” is fanciful.
The refusal to expand government spending on helping millions of distressed poor and low-income families when it is so needed is unconscionable – more so with how this is from a fetishization of credit ratings and infrastructure.
The approach of the economic managers is counterproductive even on their own terms. The lack of meaningful stimulus does not just distress poor families but also hinders rapid and sustained macroeconomic recovery. It represses growth and government revenues while making deficits and debt more unmanageable.
The economy is not just hindered by quarantine restrictions. It is also stifled by the unprecedented loss of informal sector livelihoods and enterprise closures which has contracted household incomes, wiped out savings, and collapsed aggregate demand. These have to be directly addressed.
The economic managers rightly point out that multiple strategies are needed to recover the economy. They however remain blind to the most socially and economically important measure of genuinely expansionary fiscal policy.
