Assistance to Vulnerable Households, Small Businesses Key to Mitigating Pandemic’s Impact and Hastening Recovery in the Philippines

Social assistance to poor and vulnerable families as well as micro and small enterprises will help cushion the impact of COVID-19 and hasten recovery in the Philippines, according to From Containment to Recovery, the World Bank’s October 2020 Economic Update for East Asia and the Pacific, released today.

The report forecasts the Philippine economy to contract by 6.9 percent in 2020 before rebounding to 5.3 percent in 2021 and 5.6 percent in 2022 – a drawn out process that could slow down the country’s rapid progress in poverty reduction in recent years.

Economic growth averaged 6.6 percent from 2015 to2019, resulting from prudent macro-fiscal management, significant investments in infrastructure and human capital, and favorable external conditions. Consequently, robust growth in household incomes reduced the national poverty rate from 23.5 percent in 2015 to 16.7 percent in 2018.

The COVID-19 shock is now abruptly pushing the economy into recession and threatening these economic and social gains. The pandemic has triggered declines in remittances sent by Filipino overseas workers and job losses caused by strict containment measures.

Recovering from the pandemic requires effective public health management and social protection measures in the immediate and resuming the government’s strong emphasis on human capital investments and infrastructure that characterized the Philippines’ successful growth story pre-COVID.

“In the short-term, every peso put directly in the hands of poor and vulnerable families through social assistance translates into demand for basic goods and services in local communities, which in turn supports micro and small enterprises and the government’s recovery efforts” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “At the same time, one cannot overemphasize the importance of improvements in public health management including testing, tracing, isolating, and treatment to effectively control the spread of COVID-19 and secure a definitive recovery.”

Diop added that investing in the infrastructure of social services and assistance delivery – such as the foundational identification system, digital mobile access, and transaction accounts – would help ensure that social protection measures directly reach poor and vulnerable families when they need it.

In the first half of 2020, the Philippine economy shrank by 9.0 percent, as compared to 5.6 percent growth in the same period last year. The contraction, the largest since 1985, was driven by the implementation of strict quarantine measures including restrictions on mobility, work-from-home arrangements, and closures of workplaces that choked economic activities. Philippine exports and imports also weakened as international trade slumped, upended by massive disruptions in global value chains.

World Bank Senior Economist Rong Qian said that the economy is expected to rebound to 5.3 percent and 5.6 percent growth in 2021 and 2022, respectively. This projection assumes that the country successfully manages COVID-19 transmission – or that no major spikes in cases lead to further lockdowns – by early 202.

In this scenario, businesses and households regain confidence, and the government continues the roll out its infrastructure program, she said. Base effects, or the numbers tending to be high because it is coming from a negative base, will prop up growth in 2021 while the scheduled national elections in May 2022 will boost activities in the latter half of 2021 through 2022.

“In the medium term, sustaining the public infrastructure spending agenda will support economic recovery while addressing long-standing infrastructure gaps in the country,” said Qian. “Accelerating structural reforms to improve the business environment, foster competition, and boost productivity growth can enhance inclusive growth. For instance, reforms in still-protected sectors like finance, transport, communications will equip people, government, and the private sector to take advantage of emerging digital opportunities.”