Threading through recovery: Health or wealth?

Alma Angeli D. Placido

On Aug. 2, the Philippines hit the 100,000 mark for COVID-19 cases, with 50,000 new cases recorded in July. Some would associate this increase with the gradual reopening of the economy and the transition to what we now call the “new normal.” As of Aug. 20, the Philippines ranked 22nd out of 188 countries in terms of COVID-19 cases, just behind two other populous Asian countries: Bangladesh and India.

On the same day that the country breached its 100,000 COVID-19 cases, the President heeded the call of the medical community for a stricter enhanced community quarantine as the number of cases continued to increase nationwide. He announced a modified enhanced community quarantine (MECQ) over Metro Manila, Bulacan, Laguna, Cavite and Rizal between Aug. 4 and 18.

As these designated areas reverted to MECQ, a slower economic recovery was anticipated, leaving businesses to navigate further uncertainties.

Subsequently, on Aug. 17, the President declared the lifting of MECQ in Metro Manila and four other provinces into a less stringent General Community Quarantine (GCQ) by Aug. 19.

Based on the Oxford COVID-19 government stringency index, the Philippines implemented the most rigorous social distancing policies and health protocols in the ASEAN region to prevent the rapid spread of COVID-19. However, it may be worthy to note that Singapore, Indonesia and Malaysia implemented social distancing measures ahead of the Philippines.

The Greater Capital Region (GCR), which includes the National Capital Region (NCR), Central Luzon (Region III), and CALABARZON (Region IV-A), accounts for 61.6% of the Philippines’ Gross Domestic Product (GDP). Because Metro Manila and several other areas within GCR have been under quarantine since March 16, the economy took a huge hit, resulting in a recession with several major industries heavily impacted.

The Philippines recorded a 16.5% GDP contraction in the second quarter. Leading the GDP retreat were the manufacturing, construction, and transportation and storage sectors, with double-digit drops of -21.3%, -33.5% and -59.2% respectively.

The Philippines’ sharp GDP decline is the second-worst in ASEAN, after Malaysia’s -17.1%. Most countries in ASEAN posted GDP contractions in the second quarter, with the exception of Vietnam, which managed to grow 0.4%.

Cash remittances from Overseas Filipinos Workers (OFWs) came in at $14.0 billion in the six months to June, down 4.2% from a year earlier. In addition, 300,000 OFWs displaced by the COVID-19 pandemic are expected to return to the country within the next three months, according to Vivencio Dizon, National Policy Against COVID-19 deputy chief implementer. This will further jeopardize future cash remittances.

As of July 28, the Development Budget Coordination Committee (DBCC) revised its initial projection of the Philippines’ 2020 GDP growth rate to -5.5% from the previous -2.0 to -3.4%. This is after considering updated indicators on the impact of the pandemic on tourism, trade and remittances for the year.

In the fifth State of the Nation Address (SONA) by President Rodrigo Duterte in July, he announced a list of government priority programs to address the adverse economic impact of the pandemic. These include the strict implementation of the Ease of Doing Business and Efficient Government Service Delivery Act; the enhancement of the Build, Build, Build Program; the passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which reduces corporate income tax rate and rationalizes certain tax incentives; and the Bayanihan to Recover as One Act (Bayanihan II), which represents the government’s response to the economic impact of the pandemic.

The huge slump in second-quarter GDP growth prompted the National Economic and Development Authority (NEDA) to reconsider its original recovery plan (Philippine Program for Recovery with Equity and Solidarity or PH Progreso). The NEDA created the Recharge PH program to ease the negative impact of the pandemic and lead the Philippine economy towards recovery. It is set to be implemented this year and into 2021 and will likewise be incorporated in the updated Philippine Development Plan 2017-2020.

Considering the effects of the community quarantine felt in the second quarter, it is likely that similar or worse consequences will hit the country as varying levels of quarantine continue to be maintained in various localities. As confirmed COVID-19 cases continue to rise daily, businesses will experience further losses from changes in consumer spending and constantly changing restrictions on business operations. Additional business costs are also anticipated as stricter health protocols are implemented. Businesses will be keen to manage short-term cash flows to ensure that operations stay afloat as the economy stagnates. More businesses are expected to shift to digital platforms and reinvent themselves to address uncertainties through value chain transformation.

As the global health community grapples for a cure for COVID-19, businesses must do their part to ensure the safety of their people by establishing effective health guidelines. Businesses will have to devise strategies built around safeguarding the well-being of employees and customers. Digital transformation enhances their ability to deal with the changes in market requirements, without compromising the safety of employees.

For businesses to successfully navigate this particular moment, they must identify and address sources of uncertainty to preserve organizational stability and build resilience. Addressing underperformance is a challenge as businesses work through numerous constraints. It is critical for businesses to revisit their strategies to build a sustainable competitive advantage even during periods of disruption.

This period has driven the government to prioritize developing a strong digital economy. Balancing regional economic development is one of the government’s pillar programs, and one way to get there is to focus on developing competitiveness in information and communications technology (ICT).

To address the need for physical distancing and reduced face-to-face interaction, the government must expand the coverage of its National Single Window (NSW) program. The program is meant to allow parties involved in trade and transport to lodge standardized information in a secure, electronic single-entry point to complete all import, export and transit-related regulatory requirements with respect to each transaction. In this way, trade can continue without compromising the health of the workers both in the public and private sectors.

The government and private sector must work together to strike a balance between public health vis-à-vis the economy. Lockdowns are proven to be effective in curbing the spread of the virus, yet are also detrimental to the health of the economy. Recovery need not be a choice between health or wealth, but a carefully plotted path that strategically achieves both goals.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.

Leading the way in business

Other SGV News and Publications