JOINT STATEMENT OF THE DUTERTE ADMINISTRATION’S ECONOMIC MANAGERS ON THE PHILIPPINE ECONOMIC PERFORMANCE FOR THE FOURTH QUARTER AND FULL-YEAR OF 2020
28 January 2021
Colleagues in government, friends from the media, fellow Filipinos, good morning.
We entered 2020 with the prospects of becoming an upper middle-income country two years ahead of our 2022 target. Earlier in 2018, we achieved a record low poverty rate of 16.7 percent of the population, lifting some six million Filipinos out of poverty four years ahead of our target.
President Duterte’s policy of fiscal prudence and his push for tax reforms enabled us to achieve the highest revenue-to-GDP ratio of 16.1 percent, and the lowest debt-to-GDP ratio of 39.6 percent in 2019. We earned an unprecedented upgrade in our credit rating, which allowed us to access funds for our priority programs at concessional rates and favorable terms. These enabled us to sustainably fund the Build, Build, Build program and provide more and better social services to the people. As a result, both the unemployment and underemployment rates also fell to historic low levels. In other words, we had realized better economic and social outcomes for the Filipino people.
However, COVID-19 disrupted our growth momentum and development trajectory. To address this unprecedented crisis, the government made the difficult decision of imposing community quarantines as it put a premium on saving lives and protecting communities from the virus, while beefing up our healthcare capacity. This is not without any consequence. Like any policy decision that comes with trade-offs, this one came at a huge cost to the economy and the people.
When we restricted the economy in the second quarter of 2020, GDP fell by 16.9 percent and the unemployment rate rose to 17.7 percent.
However, improvements were seen with the gradual easing of restrictions. In the third quarter, we had a much slower GDP contraction of 11.4 percent. On a quarter-on-quarter basis, the economy even grew by 8 percent. Unemployment rate also dropped quickly to 8.7 percent.
In the fourth quarter of 2020, our economy performed better with a smaller GDP contraction of -8.3 percent. This brings the full-year GDP contraction to -9.5 percent, which is at the low end of the DBCC estimate of -8.5 to -9.5 percent for 2020. On a quarter-on-quarter basis, the economy grew by 5.6 percent.
This improvement was the result of the further reopening of businesses and wider accessibility of public transport since October 2020. However, it also shows the limits of economic recovery without any major relaxation of our quarantine policy.
On the demand side, private consumption, which comprises some 70 percent of GDP, remained weak with a -7.2 percent growth. While the government relaxed the restrictions in the supply side by allowing more public transport and establishments to operate, restrictions on the demand side, notably on the mobility of children, and hence families, prevented private consumption from making a stronger comeback.
The Philippines has a young population where the median age is 25 years old. Forty percent of our population is below 20 years old. Economic growth will be hard pressed to make a stronger recovery if children and families are restricted from participating in the economy, as up to 50 percent of non-essential retail sales are driven by family spending.
Consequently, our quarantine restrictions reduced household spending by 801 billion pesos in 2020 or an average of around 2.2 billion pesos per day. The fall in consumption translates into a total income loss of around 1.04 trillion pesos in 2020 or an average of around 2.8 billion pesos per day.
On a per capita basis, annual family income declined by some 23,000 pesos per worker, but this average masks wide differences across sectors and jobs. Some workers were hit much harder, while others lost their jobs completely.
Nevertheless, we see green shoots of recovery. Investments had a slower contraction of -29.0 percent from -41.6 percent in the previous quarter. Both private and public constructions saw improvements, but inter-province travel restrictions have prevented many workers from going back to work. Moreover, international travel restrictions and the resurgence of the virus in advanced economies also affected the pace of construction as their experts had a difficult time coming to the Philippines.
The government’s infrastructure program was 10 percent higher relative to the programmed levels. However, when compared to the high base in the fourth quarter of 2019, it was 32.5 percent lower given the government’s catch-up plan following the delayed congressional approval of the 2019 budget.
Meanwhile, government consumption grew by 4.4 percent, despite the high base in 2019. As of December 31, 2020, 109 billion pesos have been released under Bayanihan II.
On the external account, the slower contraction of exports at -10.5 percent compared to -14.4 percent in the previous quarter shows that external demand is picking up as neighboring economies improve.
For instance, China’s economy grew by 6.5 percent while Vietnam’s economy expanded by 4.5 percent. As a result, merchandise exports to China and Vietnam grew in the fourth quarter by 13 and 30.5 percent, respectively. On the other hand, with consumer demand and investment constricted, imports contracted by -18.8 percent.
On the supply side, further opening of the economy led to smaller contractions in industry, manufacturing, and services growth. However, agriculture performance deteriorated and contracted by 2.5 percent due to a series of typhoons, flooding, and the African swine flu. Six typhoons, namely typhoon Nika, Ofel, Pepito, Quinta, Rolly, and Ulysses, caused some 16.6 billion pesos worth of losses and damage to agriculture. To prevent further spread of the disease, some 432,000 hogs were culled.
Prospects and managing risks to open the economy
The prospects for 2021 are encouraging. With the continuous calibrated reopening of businesses and mass transportation, and the relaxation of age group restrictions, we will see more economic activity in the months ahead. This will lead to a strong recovery before the end of the year, when the government will have rolled out enough vaccines against COVID-19 for a majority of our people.
The Development Budget Coordination Committee (DBCC) estimates that the economy will grow by 6.5 to 7.5 percent in 2021 and by 8 to 10 percent in 2022. The Duterte administration’s efforts to increasingly open the economy while taking resolute steps to fast-track the vaccination program and keep the COVID-19 caseload to the lowest level possible, would boost business and consumer confidence that are crucial to a robust economic recovery.
All of these efforts to contain the coronavirus and revive the economy will allow us to prevent long-term economic scarring and productivity losses and recover to the pre-pandemic level by mid-2022.
Our early progress in reducing poverty and attaining most of the ten-point socioeconomic agenda by mid-term or in 2019 has prepared the country better and put it on a more solid path to recovery.
Our experience in 2020 shows that the economy is strong enough to recover if we enable it to do so. With the productive sectors of the economy strengthened by our fiscal and economic reforms, and by our infrastructure program, we see no reason why the economy cannot bounce back once community quarantines are further relaxed. The halving of the unemployment and hunger rates from record highs as we gradually relaxed the quarantine in the second semester of 2020 shows that economic potential remains, and only held back by excessive risk aversion.
Further opening the economy in 2021 will require a careful and calibrated approach given risks from new virus strains. However, prolonging the status quo of community quarantine and risk aversion is not an option. In 2020, we saw significant hardships among the people who were deprived of jobs and income that led to more hunger, more poor people, higher prevalence of other sicknesses, far more deaths from non-COVID reasons, and lost opportunities.
Proactively managing the risks and striking a better balance between protecting the people from COVID-19 and non-COVID-19 problems is the only way to go, and the people are with us. For instance, in surveys conducted by SWS and Pulse Asia, 39 percent of respondents in September 2020 say that the government needs to balance the opening of the economy and jobs and controlling the spread of the virus. In November 2020, this has gone up to 73 percent. The people have spoken.
Further opening the economy will entail increasing the public transport capacity, allowing gradual face to face schooling beginning with pilot cases, and broadening the age group allowed to go out, all with the appropriate safeguards.
We will continue to evaluate both economic and health data to make a more informed decision so that the holistic welfare of the people is pursued. For instance, data shows that when the Cabinet approved the further re-opening of the economy beginning October 2020, COVID-19 cases did not spike, nor did it go up during the year-end holiday season. Starting January 2021, we will be conducting the labor force survey monthly, so that we will be able to have more timely data on jobs and thus take more timely actions to address any emerging issues.
Our experience in 2021 also shows that many Filipinos have learned to live with the virus, are complying with the minimum health standards, and are able to manage the risks in their personal lives. Nonetheless, we remain vigilant given the emergence of new COVID-19 variants.
To improve confidence, the government has allocated 72.5 billion pesos this year to provide vaccines to at least 50 million Filipinos. Rolling out these lifesaving doses will allow us so safely open more the economy and restore jobs and incomes to make our fight against hunger more sustainable.
Alongside the prospects for a mass vaccination program, the higher government spending through the Bayanihan II and the 2020 and 2021 budgets, as well as the swift congressional approval of our key legislative bills would underpin economic recovery this year and onwards.
The speedy implementation of Bayanihan II, coupled with the extension of Bayanihan II to June 30, 2021 and the 2020 budget to December 31, 2021 will allow the government to spend some 195.3 billion pesos more in 2021. This translates to additional fiscal stimulus of around one percent of GDP in 2021.
Another key driver is the 2021 budget, which amounts to around 4.5 trillion pesos or some 21.4 percent of GDP. This includes a budget of 1.1 trillion pesos for infrastructure. With a multiplier of 2.27, meaning every peso spent creates another 1.27 pesos, some 1.7 million jobs can be created to accelerate the recovery. Timely implementation of infrastructure projects will have the biggest impact on our recovery prospects.
The economic expansion will depend in part on how businesses, including micro, small and medium-sized enterprises (MSMEs) that employ a majority of workers, could recover and keep jobs or create new ones.
The Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill is the government’s biggest stimulus ever for businesses and will primarily benefit MSMEs that account for 99 percent of local enterprises. We, therefore, urge both houses of Congress to conclude the bicameral conference on the CREATE so that businesses can avail of the lower taxes and other benefits to aid in their recovery. All in all, CREATE will contribute 133 billion pesos worth of fiscal incentives in 2021. This is equivalent to 0.67 percent of GDP.
The Financial Institutions’ Strategic Transfer (FIST) bill will help banks free up capital and funds to lend to more businesses facing liquidity issues. According to the Bankers’ Association of the Philippines (BAP), this can free up some 700 billion pesos in capital to potentially provide up to 3.01 trillion pesos in additional lending.
The swift passage of Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill, meanwhile, will help strategically important companies by helping them address any solvency issues.
Congress could help ensure the long-term recovery of the economy by passing not only our key economic bills but other pending measures that are immediately doable to attract more foreign direct investments and create more and better jobs. We urge our legislators to swiftly pass the amendments to the Public Service Act,
the Retail Trade Liberalization Act, and the Foreign Investment Act. All these are crucial in revving up the Philippine economy and sustaining its recovery. These measures complement the other reforms we have done, such as the Build, Build, Build program, the Rice Tariffication Law, and the Ease of Doing Business Act.
To conclude, the year 2020 will be remembered as the most difficult year in our lives. The road ahead remains challenging but there is now light at the end of the tunnel.
2021 will test everything: it will test our resiliency, our economic foundation, our healthcare system, and even our personal grit. Our resolve to work together for the common interest will spell the difference between recovering sooner or much later.
The government is committed to deliver adequate, prudent, and timely policies and responses to help restore income opportunities and jobs.
We assure the Filipino people we will not waste this crisis. Like before, we will turn this crisis into an opportunity to recover strongly, and collectively build a better normal and a more inclusive society for many years ahead until our Ambisyon Natin 2040 vision where no one is poor is attained.