The economic numbers resulting from the COVID-19 crisis are scary. The International Monetary Fund (IMF) estimates the annual global GDP loss at US$9 trillion.  Here at home, with various shades of lockdowns still in place (by September), no one believes the government forecast of just a mere 3-4 percent GDP slide for 2020.

dejaresco - Budgetary intervention vs COVID-19

The prognosis of a 9.0 percent annual GDP slump for the country by Fitch Solutions, Nomura  Japan,  ANZ and HSBC steps more in cadence with reality.

The economic loss for the nation is pegged at P2 trillion with job losses from the 45 million workforce at the range of 7 million based on estimates by the Philippine Statistics Office and ECOP’s (Employment Confederation of the Philippines) of between 12-15 million jobless. This excludes the thousands of OFWs coming home for various reasons, which is one our leading sources of foreign exchange and consumer spending.

The BSP (Bangko Sentral ng Pilipinas) recently stated it had plugged in P1.4 trillion into the country’s economy to stave off the recession using various monetary tools. In pushing GDP forward, however, increasing the money supply is only one aspect. Liquidity is meaningless if banks do not lend, firms do not borrow and consumers do not spend. When the other factor – money velocity – is stunted, GDP still falls regardless.

More than the stock market, this deep economic slump is best reflected in the banks’ growing NPL (Non-Performing Loans) which  BSP forecasts at P556 billion (Bankers Association of the Philippines has a lower estimate of P300 billion) bad loans which will raise the NPL ratio of the banks to a high 5% this year when it has averaged only 2% in the last three years.   

This would threaten the banks’ overall profitability, liquidity and in a sense, capital adequacy.

Fiscal-wise, the government used the GAA (National Budget) to address the demands of the pandemic.

This included: re-alignment of unused appropriations and savings in the 2019 and 2020 budgets, approval of supplemental budgets covering the Bayanihan One and Two, and steering the unprecedented big 2021 budget aimed at containing the virus and injecting blood into the anemic economy.

The main agency beneficiaries of the supplemental Bayanihan One Budget were the DSWD, DOH, LGUs, Agriculture and DOLE. Funds flowed from cuts taken away from the 2020 Budgets of the DPWH, Education, Defense, Agriculture, and Transportation transferred to the needy  ones in DOH, DSWD, DOLE and Finance (due to additional borrowings).

According to the DBM (Budget and Managment) , about 94 percent, or P3.8 trillion, of the 2020 GAA of P 4.5 trillion has already been committed as of July leading to the quick approval of another P165-billion Bayanihan Two budget: P140 billion drawable till December and the balance  of P 25 billion dependent on raising fiscal sources.

The “recovery targets” for the nation are embedded in the 2021 P4.5-trillion proposed budget to cover additional purchases of PPEs, buying the anticipated vaccines, learning continuity with ICT support, digitilization of government operations, food security and recovery of the countryside.

Main beneficiary for 2021 will be the DPWH for the “Build Build Build” program with a budget of P 667 billion. Total infrastructure budget for 2021 is posted at P 1.3 trillion representing 5.3 percent of GDP. This ratio dropped to just 4.6 percent in 2020 due to budget re-alignments.

Hard put is government since this gigantic budget comes at a time when tax revenues from the BIR and BOC are expected to drop by 22% in 2020 (P2.128 billion) from P2.8 billion in 2019. Thus, the government is constrained to borrow a whooping P 6 trillion in the years 2020 and 2021 from both domestic and foreign sources.

So far, foreign loans (tied to COVID-19) reached US$9 billion with more than US$6 billion already injected into the financial system as of July plus the US$2.5 billion in international bonds floated.

Under House Bill CREATE, a package of fiscal reforms is expected to attract P625 billion in new foreign investments while recapitalizing the government banks and guarantee system will stimulate P500 million in economic activities, especially among the small businesses, according to the Finance Department.

To save the banks, the NEDA is contemplating establishing a special unit to do joint venture with the NPLs of the banks – exchanging debt for private or government equity and selling back the shares when good times are back again. (This is akin to the old Special Purpose Vehicle unit).

With the procurement requirements eased, budgets freely realigned and increased, government post-facto is expected to face investigations of graft in terms of overpricing, abuse of subsidies, ghost payments and the damaging corruption at Philhealth.

Finally, when the much-awaited vaccines are in place in 2021 and the need to buy them very pressing, then we might see another round of budget re-alignments or supplements, pushing back other economic goals in favor of the medical safety in 2021.

(Bingo Dejaresco, a former banker, is a financial consultant, media practitioner and book author. He is Life Member and Broadcast chair of Finex but his views here are personal and do not necessarily reflect those of Finex.

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