The COVID-19 pandemic has crippled economies all over the world, with the International Monetary Fund (IMF) predicting the worst economic crisis since the Great Depression nearly a century ago. Governments are now scrambling to come up with policies and programs to mitigate the damage caused by the sudden downturn. Specifically, countries have been forced to set up stimulus packages to support areas and groups that have been hit hardest by the halt in economic activity.
What has the Philippines done? The Rodrigo Duterte administration launched a PHP 1.17 trillion four-pillar socioeconomic strategy to fight the COVID-19 pandemic. A portion of this budget is allocated to fund immediate concerns related to social protection and health care, while another chunk is allotted for future programs and projects to help the economy recover.
The first pillar of the stimulus package provides emergency support to vulnerable groups, amounting to P305 billion. Majority of the fund (P205 billion) is allocated to provide subsidies to 18 million low-income households in the country for two months. Wage subsidies will also be distributed to employees of small businesses that closed down during the enhanced community quarantine (ECQ), and cash assistance will be given to displaced workers and overseas Filipino workers (OFWs).
The Department of the Interior and Local Government also announced that a P30 billion pool will be made available for local government units (LGUs) as additional funding to provide assistance to vulnerable sectors in their areas. Furthermore, the Land Bank of the Philippines has set up a P10 billion loan fund that LGUs can tap.
For the second pillar, a budget of PHP 35.72 billion is allotted to augment healthcare spending in the country. PhilHealth will use a significant portion of this fund to cover the medical expenses of COVID-19 patients and frontline health workers. This pillar also aims to address the shortage of personal protective equipment (PPE) and medical supplies in the country, as well as procure and produce more COVID-19 testing kits.
The largest chunk of the stimulus package, amounting to around P830.47 billion, is earmarked for fiscal and monetary actions to keep the economy afloat. The World Bank and the Asian Development Bank have contributed a total of P310 billion, while the Bangko Sentral ng Pilipinas (BSP) has allocated P300 billion to purchase government securities.
Regulatory relief has also been provided to BSP-supervised financial institutions by lowering the interest rate by 50 basis points, reducing the reserve requirement ratio by 200 basis points, and lifting any penalties for the next six months. This is expected to provide additional liquidity to the economy of P220 billion.
According to the Department of Finance (DoF), this P830.47 billion fund will be used to fund the fourth pillar: an economic recovery plan to create jobs and sustain growth. Specifically, the government intends to craft a bounce-back program to aid micro-, small-, and medium-enterprises (MSMEs) and other industries. In order to facilitate specific interventions per industry, the government will roll-out a nationwide survey to assess the damage the pandemic has done to MSMEs and other industries. Lastly, investment in social and infrastructure programs will also be covered under this fund as a means to revive the economy.
How does the Philippine package compare to the fiscal and monetary responses of other countries?
TOTAL PACKAGE AS A PERCENTAGE OF GDP
In its entirety, the stimulus package set up by the Duterte administration is worth around 6.3% of the country’s GDP, with 1.6% going to social amelioration measures, 0.2% to healthcare spending, and 4.5% to finance emergency initiatives and economic recovery.
Research shows that the stimulus package as a percentage of GDP varies widely among countries. The 6.3% figure is greater than that of other lower-middle income ASEAN countries. For example, Indonesia’s stimulus package amounts to 1.1% of its GDP, while Vietnam’s package is estimated to be worth 3.3% of its GDP. Meanwhile, the stimulus packages of higher- income ASEAN countries are worth a greater percentage of their GDP. For instance, Singapore’s package is approximately 11% of its GDP, while Malaysia’s package is estimated at 17% of its GDP.
A stimulus package worth a higher percentage of GDP does not necessarily mean that a government is more equipped to control the spread of COVID-19. Or it could be that bigger spending is necessary for countries that face a worse health crises. As of April 25, the United States, which has a package estimated at 10% of GDP, has reported close to 930,000 confirmed cases of COVID-19, with thousands dying each day. Furthermore, Spain has reported around 230,000 confirmed COVID-19 cases despite launching a stimulus package amounting to 20% of GDP.
On the other hand, Vietnam, with a package worth 3.3% of its GDP, has only 268 confirmed cases, with no reported deaths. The country has also reported no new COVID-19 cases in the past week, and has since eased its lockdown.
(ADDENDUM: For this portion, we note that some calculations and information were gathered at an earlier date. Current information may now be different, depending on the pace at which countries are responding to the pandemic.)
In the Philippines, approximately 62% of the budget for healthcare is earmarked to cover the medical expenses of COVID-19 patients and health workers. Thailand has adopted a similar approach, stating that the government will pay for the medical expenses of COVID-19 patients.
The rest of the health budget from the stimulus package is allocated to procure and produce medical equipment, PPE, and testing kits. Specifically, government has P1.8 billion to procure one million pieces of PPE and P53.2 million to produce testing kits manufactured by the UP National Institute of Health.
Furthermore, different countries have liberalized the entry of medical equipment to fight COVID-19. The Philippines, Laos, Sri Lanka, and Vietnam, among other Asian countries, have implemented tax and duty exemptions for medical equipment.
All in all, the healthcare spending package set up by the government is worth 0.2% of GDP. This may not be sufficient to finance the country’s healthcare needs if the duration of the pandemic is prolonged. To beat this pandemic, we need a strong and well-capacitated healthcare system, which will require sustained funding.
Where the countries have converged is with regard to establishing job support measures and protection for MSMEs and displaced workers. The Department of Labor and Employment in the Philippines has set up a P2 billion cash assistance program for displaced workers. France and Italy have also set up a similar program, while Thailand is distributing cash handouts for workers outside of their social security system. Many countries are providing aid to self-employed workers.
Many countries have established loans to provide assistance to MSMEs. These countries include the Philippines, Indonesia, Malaysia, Australia, Canada, France, Germany, Spain, the UK, and the US.
The Philippines has followed a similar economic strategy that other countries have adopted in fighting the COVID-19 pandemic, which focuses on social protection, healthcare spending, and economic recovery. For such financing, having fiscal space is an advantage. In this regard, the passage of recent tax reform laws has helped the Philippines. The tax reforms have provided us with a broader fiscal space to be able to borrow. That said, the government must spend the resources prudently, efficiently, and equitably. Deficit borrowing does not mean spending thoughtlessly.
Carlos Jacinto is a researcher of Action for Economic Reforms. The author also thanks Jestine Mendoza of the Asia Foundation for doing a matrix that summarizes the global economic stimulus packages of The Philippine Economic Package to Fight COVID-19 countries in view of the COVID-19 pandemic. The matrix can be accessed here: https://docs.google.com/document/d/16EERgpdcUeFNvNgoNAFih1jER03sid5Zkn6EThxyp-Q/edit