Heneral Lunacy | Posted on May 9, 2020
It could be more than just “a temporary setback”.
We have been worrying about flattening the COVID curve. We should start worrying about flattening the economic curve because right now it is in a nose dive. We have been hypnotized by COVID and its body count not realizing the patient whose existence we are trying to save is dying from the medication.
Our first quarter GDP dropped by 0.2 percent and that was with just 15 days of ECQ. We are on our way to losing PHP 2.5 trillion. Wait till you see the second quarter.
The economy is on free fall which if not reversed soon could result in what economists call a death spiral where a fallout in demand leads to disinvestment and layoffs which further destroys demand resulting in more disinvestment and layoffs; until the whole thing crashes to the ground.
Interestingly the prescription to flatten the economic curve is in many ways similar to that for the COVID curve. It involves early detection, containment and remediation.
The first quarter numbers show we are further down the economic curve and dropping more quickly than we had expected. We are approaching 60 days which is the milestone the Government and the private sector had set for turning things around. The Bayanihan bill’s lifeline for the poor and unemployed covers two months. Many businesses have agreed to carry their workers for this period by which time they hoped restrictions would ease. This is not happening. Bayanihan will have to be extended. The private sector will have to decide whether to throw in the towel or risk good money after bad. Many are leaning towards the former particularly if the current quarantine is further prolonged with no relief in sight.
The Government’s fiscal position of unpredictable spending and predictable loss of revenue is unsustainable. The Treasury’s budgeted burn rate is PHP 342 billion a month without COVID related expenses. Some budgeted expenses can be diverted to social relief but after deducting debt service, salaries, project guarantees, etc. the wiggle room is probably no more than 5-10% of our total budget of PHP 4.1 trillion. On the other hand tax revenues are dropping by PHP 33 billion for every 1% drop in GDP based on early Treasury projections.
The Treasury recently borrowed USD 2.3 billion from the international markets. There are reported ODAs of PHP 310 billion. The BSP may be ready to finance another PHP 500 million on top pf the PHP 300 billion earlier approved. This totals some PHP 1 trillion which might carry us in to autumn possibly a little longer if we can stretch out payments.
And now for the bad news.
There is some PHP 80 billion in social amelioration support that has still to be paid to five million “officially poor”.
An extended quarantine will add some PHP 150 billion a month in relief assistance.
Thirty two business groups are asking for PHP 280 billion in stimulus. This excludes help for floundering but vital industries like the airlines and tourism.
The House is considering a spending bill of around PHP 300 billion for rehabilitation.
Hospitals are bleeding because of the shutdown in elective procedures. They may need a lifeboat or cut back on COVID capacity at a time when a second wave arrives.
Mayors have asked for more money “to prevent social unrest”.
Philhealth is hemorrhaging and may need recapitalizing.
The DOLE unemployment fund has run out of gas.
The Philguarantee loan window has still to be opened for micro-businesses.
The numbers may be off but you get the drift. There are a lot of begging bowls out there.
Our economic managers say there is more money from where it came. Pre-COVID we had borrowed only 41% of GDP, we have been as high as 70% in recent years, that is another few trillion in borrowing capacity. And then there is the Cultural Center.
But even that headroom could disappear.
Our economic team has not addressed the elephant in the room: Is our current stimulus enough to flatten our economic curve? We currently are spending 1.9% of GDP which is significantly lower than that of our neighbors Malaysia (9% of GDP), Singapore (11%), Thailand (10%). The U.S. stimulus is approaching 50% of GDP but that is another story. Indonesia is closest to us at 2.5% of GDP but that will almost certainly rise because they are late in addressing the crisis. If we get to comparable numbers we would add another PHP1.6 trillion to our fiscal deficit. We could be looking at the bottom of our bank account.
The next 6-9 months are arguably the most critical period in our Republic. In this time we could be out of money, have immense economic suffering and social stirrings.
There have been a number of plans with a lot of letters to rehabilitate our economy – BBB, PPP, BOT, CITRA – but while all good, they will have to wait. The patient is dying. Our total focus should be on, one, keeping the patient alive; two, guaranteeing no Filipino is left behind; and three, ensuring we have the money for the life support.
Like COVID flattening the economic curve is time sensitive. The earlier it is done, the easier to contain the conflagration. Even if we were to open our doors today, the recovery will not be immediate or linear. There could well be health hiccups along the way. Consumers may want to save rather than spend. Businesses will want to run down their inventory before restarting. Notwithstanding the NEDA Acting Secretary’s comforting words, the recovery will be a W or a long U rather than V-shaped. But we must proceed.
The Government does not have the resources to carry the economy on its own. It needs the private sector to share the burden but the latter must be given the physical and regulatory freedom to do what it does best, to risk, move, operate and invest. It must also have a seat at the table.
Business and the consumer need from Government the four Cs of confidence, credibility, consistency and clarity. Right now, I am afraid, we could use a little more of these.
Source: https://heneralunacy.wordpress.com/2020/05/09/flattening-the-economic-curve/