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Philippine Economy And The Coronavirus Pandemic

Updated on April 23, 2020 12:00 am
phillipines economy

The Coronavirus outbreak is first a human crisis before an economic one. According to Johns Hopkins University, more than 2.5 million people tested positive for COVID-19, and above 188,846 deaths have been reported globally. The Philippines has one of the highest numbers of COVID-19 cases in Southeast Asia with over 6981 and the number of deaths at 462.

The outbreak has crippled the economy as economic activities dropped, strict social distancing measures are imposed by countries to adhere to the recommendations by the World Health Organization and other public health authorities around the world.

Impact on the Philippine Economy

Due to the economic fallout from the coronavirus pandemic, it has been predicted that as many as 1.2 million Filipinos could be unemployed. The Gross Domestic Product (GDP) growth of the Philippines that has averaged around 6 percent annually for the past decade is expected to contract this year. 

Primary economic growth drivers like consumption, tourism, and trade are impacted as the lockdown measures and strict travel restrictions remain in a bid to flatten the curve.   

In March, the Philippines became the first country in the world to temporarily shut down its financial markets in response to the coronavirus outbreak. When the markets reopened after two days, the Philippines Stock Exchange index reported its biggest intraday-loss in 33 years. A 24% drop leading to a loss of 40% for the month.

Risk-averse foreign investors were quick to leave the market and sold over $480.5 million worth of local stock, the fastest pullout in Bloomberg's tracking history of the data since 1999.

The government had earlier set a 6.5 % to 7.5% growth target for this year. Due to the adverse impact of the coronavirus outbreak, the growth is estimated to between -0.6% to +4.3% in the absence of mitigating measures.

Coronavirus Impact on Trade

The Coronavirus pandemic has disrupted trade across the globe. Especially for a country like the Philippines which is highly dependent on China. 

China is the top trading partner of the Philippines with an estimate of 18.8% of the total trade as per the Philippine Statistics Authority (PSA). China is also the biggest importer for the country as 22.9% of total export went to China in November 2019. And the Philippines imported roughly 20% of goods from China. These numbers have fallen sharply and it is not likely to improve until the Q1 of 2021.

Effect of Coronavirus On Tourism

Tourism is one of the main economic drivers of the Philippine economy. In 2018, its tourism receipts in percent of total exports were high compared to some other neighboring Asian countries. 

The travel and tourism sector contributed $82 billion to Philippine's economy or nearly 25 percent share to total GDP in 2018, according to the World Travel and Tourism Council (WTTC) report. 

The Philippines' tourism revenue alone was USD 9.31 billion in 2019, the Department of Tourism (DOT). Aside from all-time high earnings, the Philippines also achieved its targeted 8.2 million international arrivals. 

Border closure, strict travel restrictions, the ban on airlines, together with other containment and mitigation measures in the aftermath of the outbreak, has been a major blow to the industry.

Other businesses affected by the Coronavirus Outbreak

  • Small and Medium enterprises that have less than 9 employees constitute about 88.5% of the businesses and employ as much as 28.9% of the total labor force in the entire country
  • Call centers or Business Process Outsourcing, another key pillar of Philippine's economy accounts for about 8% of the country's GDP, employing 1.3 million people. The Department of Labor and Employment (DOLE) report said enterprises had resorted to flexible work arrangements such as reduction of workdays, work rotation, forced leave, and work-from-home schemes.
  • Businesses need Government intervention to weather through the economic crisis, both the big business to small business. 1.2 million Filipinos could lose their jobs due to the pandemic.

Government measures to save the Philippine Economy

  • The government has set aside around a $23 billion rescue package as funding for the efforts toward containing the virus.
  • The Philippine central bank, Bangko Sentral ng Pilipinas (BSP) announced a 200 basis points reduction in the reserve requirement ratios (RRR) of banks to support the financial markets and encourage lending.
  • As the economic blow deepened, it expected 50 bps cut in the interest rate to counter the impact. The interest rate is at 3.25% at present, with overnight deposits standing at 2.75% and lending rates at 3.75%.
  • Bangko Sentral ng Pilipinas also approved a 300 billion pesos ($5.87 billion) program to help the government fight the coronavirus pandemic
  • A stimulus package of around 200 billion pesos ($3.93 billion) has also been prepared by the government to support people and businesses affected by the outbreak. The Finance Secretary said the funds will be directed from non-budgetary sources.
  • The government has also announced to provide 18 million vulnerable households with the funds of 200 billion pesos ($20 billion) from emergency subsidies. The beneficiaries will receive an amount of PHP 5,000 to a maximum of PHP 8,000 for the month of April and May each to buy basic requirements like food, medicine, and other essentials.
  • Financial assistance will also be provided to affected SMEs and vulnerable households through specialized micro-financing loans and loan restructuring.

Banking and Coronavirus

As people are observing strict quarantine measures and governments and banks are advising consumers to move to online banking, we have seen a rise in contactless payments.

  • The BSP has also announced a series of regulatory relief measures for the banking sector.
  • Banks are also expected to suspend all fees and charges imposed on online banking platforms during the period of regulatory relief.
  • The BSP has relaxed documentary and reporting rules for foreign exchange operations.

Remittance into the Philippines and Coronavirus

Remittances received in January 2020 was $2.94 billion, an increase from $2.75 billion achieved in January last year. However, as the economic activity froze further to contain the coronavirus outbreak, an unprecedented amount of job loss around the world has spiked the unemployment rate overall.

More than 10 million Overseas Filipino workers or about 10% of the population send money home. Remittance to the Philippines accounts for 10% of the GDP. The growth in the remittance is down to 2% than the previously projected 3% for 2020.

Recovery of the Economy

JPMorgan has downgraded the 2020 growth forecast for the Philippines to 0.9% from 2.1%. The Philippine economy has shown to be resilient in the past despite extreme volatility. The resurgence of domestic demand, an increase in infrastructure spending, and consumption will drive the recovery, though the markets might take longer to recover. The biggest concern however for the Philippines is when they can reopen the economy and start the economic activity. In the words of Carlos Dominguez, the Finance Secretary, “We all know it's going to have to be a balance between health and profits.”

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