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The Philippine economy under the pandemic: From Asian

tiger to sick man again?
Ronald U. Mendoza ·
Monday, August 2, 2021

I
n 2019, the Philippines was one of the fastest growing economies in the world. It
finally shed its “sick man of Asia” reputation obtained during the economic
collapse towards the end of the Ferdinand Marcos regime in the mid-1980s. After
decades of painstaking reform — not to mention paying back debts incurred under
the dictatorship — the country’s economic renaissance took root in the decade prior to
the pandemic. Posting over 6 percent average annual growth between 2010 and 2019
(computed from the Philippine Statistics Authority data on GDP growth rates at
constant 2018 prices), the Philippines was touted as the next Asian tiger economy.

That was prior to COVID-19.

The rude awakening from the pandemic was that a services- and remittances-led
growth model doesn’t do too well in a global disease outbreak. The Philippines’
economic growth faltered in 2020 — entering negative territory for the first time since
1999 — and the country experienced one of the deepest contractions in the Association
of Southeast Asian Nations (ASEAN) that year (Figure 1).

Figure 1: GDP growth for selected ASEAN countries

Source: Asian Development Outlook

And while the government forecasts a slight rebound in 2021, some analysts are
concerned over an uncertain and weak recovery, due to the country’s protracted
lockdown and inability to shift to a more efficient containment strategy. The
Philippines has relied instead on draconian mobility restrictions across large sections
of the country’s key cities and growth hubs every time a COVID-19 surge threatens to
overwhelm the country’s health system.

What went wrong?

How does one of the fastest growing economies in Asia falter? It would be too
simplistic to blame this all on the pandemic.
First, the Philippines’ economic model itself appears more vulnerable to disease
outbreak. It is built around the mobility of people, yet tourism, services, and
remittances-fed growth are all vulnerable to pandemic-induced lockdowns and
consumer confidence decline. International travel plunged, tourism came to a grinding
halt, and domestic lockdowns and mobility restrictions crippled the retail sector,
restaurants, and hospitality industry. Fortunately, the country’s business process
outsourcing (BPO) sector is demonstrating some resilience — yet its main markets have
been hit heavily by the pandemic, forcing the sector to rapidly upskill and adjust to
emerging opportunities under the new normal.

Second, pandemic handling was also problematic. Lockdown is useful if it buys a

country time to strengthen health systems and test-trace-treat systems. These are the
building blocks of more efficient containment of the disease. However, if a country fails
to strengthen these systems, then it squanders the time that lockdown affords it. This
seems to be the case for the Philippines, which made global headlines for
implementing one of the world’s longest lockdowns during the pandemic, yet failed to
flatten its COVID-19 curve.

At the time of writing, the Philippines is again headed for another hard lockdown and it
is still trying to graduate to a more efficient containment strategy amidst rising
concerns over the delta variant which has spread across Southeast Asia. It seems stuck
with on-again, off-again lockdowns, which are severely damaging to the economy, and
will likely create negative expectations for future COVID-19 surges (Figure 2).

Figure 2 clarifies how the Philippine government resorted to stricter lockdowns to

temper each surge in COVID-19 in the country so far.

Figure 2: Community quarantine regimes during the COVID-19 pandemic,

Philippine National Capital Region (NCR), March 2020 to June 2021
Note: From most severe mobility restriction to least severe, the regimes are Enhanced
Community Quarantine (ECQ), ECQ* (similar to ECQ but with slightly fewer restrictions),
Modified Enhanced Community Quarantine (MECQ), MECQ* (similar to MECQ but with
slightly fewer restrictions), GCQ* (similar to GCQ but with slightly heightened restrictions),
General Community Quarantine (GCQ). Sources: Philippine Department of Health,
Rappler, CNN Philippines, ABS CBN News, Inquirer, Sunstar, PNA, cebudailynews.

If the delta variant and other possible variants are near-term threats, then the lack of
efficient containment can be expected to force the country back to draconian mobility
restrictions as a last resort. Meanwhile, only two months of social transfers (ayuda)
were provided by the central government during 16 months of lockdown by mid-2021.
All this puts more pressure on an already weary population reeling from deep
recession, job displacement, and long-term risks on human development. Low social
transfers support in the midst of joblessness and rising hunger is also likely to weaken
compliance with mobility restriction policies.

Third, the Philippines suffered from delays in its vaccination rollout which was initially
hobbled by implementation and supply issues, and later affected by lingering vaccine
hesitancy. These are all likely to delay recovery in the Philippines.

Quo vadis?
By now there are many clear lessons both from the Philippine experience and from
emerging international best practices. In order to mount a more successful economic
recovery, the Philippines must address the following key policy issues:

Build a more efficient containment strategy particularly against the threat of possible
new variants principally by strengthening the test-trace-treat system. Based on
lessons from other countries, test-trace-treat systems usually also involve
comprehensive mass-testing strategies to better inform both the public and
private sectors on the true state of infections among the population. In addition,
integrated mobility databases (not fragmented city-based ones) also capacitate
more effective and timely tracing. This kind of detailed and timely data allows for
government and the private sector to better coordinate on nuanced containment
strategies that target areas and communities that need help due to outbreak risk.
And unlike a generalized lockdown, this targeted and data-informed strategy
could allow other parts of the economy to remain more open than otherwise.
Strengthen the sufficiency and transparency of direct social protection in order to give
immediate relief to poor and low-income households already severely impacted by the
mishandling of the pandemic. This requires a rebalancing of the budget in favor of
education, health, and social protection spending, in lieu of an over-emphasis on
build-build-build infrastructure projects. This is also an opportunity to enhance
the social protection system to create a safety net and concurrent database that
covers not just the poor but also the vulnerable low- and lower-middle- income
population. The chief concern here would be to introduce social protection
innovations that prevent middle income Filipinos from sliding into poverty during
a pandemic or other crisis.
Ramp-up vaccination to cover at least 70 percent of the population as soon as
possible, and enlist the further support of the private sector and civil society in order to
keep improving vaccine rollout. An effective communications campaign needs to be
launched to counteract vaccine hesitancy, building on trustworthy institutions
(like academia, the Catholic Church, civil society and certain private sector
partners) in order to better protect the population against the threat of delta or
another variant affecting the Philippines. It will also help if parts of government
could stop the politically-motivated fearmongering on vaccines, as had occurred
 with the dengue fever vaccine, Dengvaxia, which continues to sow doubts and
fears among parts of the population.
Create a build-back-better strategy anchored on universal and inclusive healthcare.
Among other things, such a strategy should a) acknowledge the critically
important role of the private sector and civil society in pandemic response and
healthcare sector cooperation, and b) underpin pandemic response around lasting
investments in institutions and technology that enhance contact tracing (e-
platforms), testing (labs), and universal healthcare with lower out-of-pocket costs
and higher inclusivity. The latter requires a more inclusive, well-funded, and
better-governed health insurance system.

As much of ASEAN reels from the spread of the delta variant, it is critical that the
Philippines takes these steps to help allay concerns over the country’s preparedness to
handle new variants emerging, while also recalibrating expectations in favor of
resuscitating its economy. Only then can the Philippines avoid becoming the sick man
of Asia again, and return to the rapid and steady growth of the pre-pandemic decade.

    

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