New PH growth target of 4-5% for 2021 seen in jeopardy

The government’s downgraded outlook for economic growth of 4 to 5 percent this year may still be difficult to achieve given the disruption caused by renewed lockdown measures, said an economist from Dutch finance giant ING.

“We expect GDP (gross domestic product) growth for the full year to fall to 3.8 per cent as the latest round of ECQ (enhanced Community quarantine) blows the wind out of the recovery momentum with weak spending, the momentum of investment declining and the government expected to curb spending to limit the impact on the deficit, ”said ING Philippines economist Nicholas Mapa in a research note.

The government recently lowered its GDP growth target from the more ambitious range of 6 to 7 percent earlier. In the first semester of the year, growth averaged 3.95 percent after an 11.8 percent year-on-year growth in the second quarter that came from a very low base in the same period in 2020.

Despite the positive annual GDP growth in the second quarter, economic output fell by 1.3 per cent from the first quarter with the reintroduction of tighter quarantine measures.

Raised debt levels

“As the momentum of growth falters, an aggressive fiscal struggle has been repeatedly called for, with authorities often citing a lack of funding for such extra spending or a third round in Bayanihan,” Mapa said, referring to the law imposing COVID- Fiscal intervention and other measures.

The economist noted that the country’s debt levels continued to swell, and the debt-to-GDP ratio now exceeded the credit rating agencies’ prescribed threshold of 60 percent for two quarters. He added that the deficit-to-GDP ratio was also heading for 10 percent.

“And yet the reason from the authorities is the same: there are no funds,” Mapa said.

Mapa noted the Treasury (TSA), which is currently vacant at Bangko Sentral ng Pilipinas and refers to the national government’s demands for location.

“Currently, the balance on that account is a whopping P1.6 trillion, roughly the size of excess liquidity in the financial system, which likewise hardly goes anywhere as bank lending continues to shrink,” Mapa said.

Since the bottom of P200 billion at the end of 2019, Mapa noted that the TSA had ballooned to the highest level since the pandemic. The July figure of P1.63 trillion can be deducted at any time.

“It seems that the national government has been deleting and building up quite a large amount of funds; however. national government spending remains modest, while growth is stalling again, ”he said.

The think tank Fitch Solutions said in a separate research note dated 16 August that the slow vaccination rate and difficulties in containing the COVID-19 outbreak would overwhelm the local health system. Due to the diversion of health funds, it said that the Philippine Health Insurance Corp. (PhilHealth) may not meet its medical coverage target.

Fitch Solutions said that since the Philippines is still far from achieving crew immunity, the government may not be able to ease preventative measures more significantly.

“The shutdown of Metro Manila in August and the increased threat from the more infectious Delta variant have led us to lower our expectations for recovery through the second half of 2021,” it said.

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