The Philippines can still afford to spend more to fight the health and socioeconomic crises caused by COVID-19, but the Washington-based Institute of International Finance (IIF) expects emerging markets to hold onto their money tightly as the pandemic rages.

Across emerging markets, the Philippines was among economies that would experience “deep recessions” this year, alongside Argentina, Colombia, Czech Republic, India, Malaysia, Mexico, Peru, South Africa and Thailand, the IIF said in a June 24 report titled “Emerging Markets Relying on Unconventional Policy Tools.”

The IIF earlier projected the Philippine economy to shrink year-on-year in all four quarters of 2020 and end the year with 3-percent gross domestic product (GDP) contraction.

“The public health crisis is far from over,” said the IIF report.

“While some have been successful in bending the curve of infections, substantial restrictions remain in place in most, and the economic damage from lockdowns and travel bans will likely extend into the third quarter,” added the report authored by IIF deputy chief economist Elina Ribakova, economist Benjamin Hilgenstock, and program assistant Esther Grambs.

“With fiscal deficits rising sharply due to automatic stabilizers and debt at already-elevated levels in some emerging markets, fiscal space is running out in many cases, including in systemic emerging markets such as Brazil, India, and South Africa,” the IIF said.

“Many countries that could spend more—including Indonesia, [South] Korea, the Philippines, and Turkey—are set to experience relatively less severe contractions, and, thus, may not want to engage in additional fiscal loosening,” the IIF added.

Last month, the Cabinet-level Development Budget Coordination Committee (DBCC) projected this year’s budget deficit to hit P1.613 trillion or 8.4 percent of GDP as expenditures on COVID-19 response continued to rise while tax collection remained weak amid a recession.

Last Wednesday (June 24), Finance Secretary Carlos G. Dominguez III reiterated that the economic team wanted to keep the budget deficit to only 9 percent of GDP this year as exceeding such a cap would be “very dangerous,” even as trillions of pesos worth of stimulus bills are pending in Congress.

According to Dominguez, “we have allowed for a much-larger budget deficit because it is what public health requires, but we cannot banish the basics of fiscal discipline at the risk of bringing ourselves to bankruptcy or severe unsustainable indebtedness.”

“We might have managed the surge in infections so far,” Dominguez said.

“But, as epidemiologists warn, we could face a second wave of infections. Prudence dictates that we keep our powder dry,” he added.

“We should be able to finance fighting the second wave should this happen. We have to be very pragmatic as we confront a health crisis whose end we yet do not see,” said the finance chief.

“Presented with a variety of options for stimulus programs, we can only afford to finance those that will work best. A generous stimulus package may be ideal. But if it is unfundable and unsustainable, then it is just wishful thinking,” according to Dominguez.


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