Transcript of NEDA Acting Secretary Karl Kendrick Chua’s Statement

at the DBCC Budget Briefing on the FY 2021 Proposed Budget

September 04, 2020


Good afternoon, Chairman Yap. Deputy Speaker LRay, Deputy Minority Leader Abante, Vice Chair Sy-Alvarado.

Mr. Chair, the Philippines entered 2020 with a very strong position. Prior to COVID, our strong economic performance averaged 6.6% from 2016 to 2019- a very good performance amid a growing trade war and growing uncertainties in the global economy.

Prior to COVID, we were likely to become an upper middle-income country in 2020. We also experienced low and stable inflation, averaging 3%, from 2016 to 2019, largely also supported by the Rice Tariffication law. We had one of the strongest fiscal positions. We had the highest revenue-to-GDP effort of 16.1% and the lowest debt-to-GDP [rate] in 2019 at 39.6%, largely enabled by the comprehensive tax reform program.

Our Build, Build, Build infrastructure program doubled as a share of GDP, compared to the past five decades, at 4.5% of GDP or at least 882 billion pesos in 2019. We also achieved one of the highest credit ratings in the range of BBB+ to A-. We also achieved one of the lowest unemployment rates of 5.3%, and underemployment rate of 14.8% in January of 2020, and also the lowest poverty incidence of 16.7% as of 2018.

This very good performance reflects the progress achieved in the 10-point socioeconomic agenda wherein we achieved the commitment under: 1) macroeconomic policies, 2) tax reform, 3) ease of doing business, 4) infrastructure- we are progressing, 5) rural development- with the passage of the Rice Tariffication law, 7) human capital development with the passage of the Universal Health Care Act, 8) science and the arts- in particular with the passage of the Philippine Innovation Act, and 9) social protection with the passage of the National ID program, and we are working hard to advance the remaining items in the 10-point socioeconomic agenda.

All of these have led to significant results. The 2022 promise of lifting 6 million Filipinos out of poverty was achieved in 2018 or four years ahead of the 2022 target where the poverty rate, as a share of the population, fell from 23.5% to 16.7% between 2015 and 2018, and we are on track to achieving 14% by 2022, or lower.

Unfortunately, no one anticipated that the COVID pandemic will [strike] the global economy. In the first three months of the quarantine, we prioritized saving lives against COVID. We used this time to improve our health system capacity.

Our daily testing peaked at 41,030 on August 27. Our testing capacity was achieved at 84,595 as of August 25, meaning we can test more than 2 million per month. By the models of UP and Ateneo, we averted some 59,000 to 171,000 deaths. Our death rates reduced from a high of 17% to just 1.6% or around 4000 deaths. We averted some 1.3 to 3.5 million cases, of which 68,000 would be severe and critical cases on the peak day, which will overwhelm our healthcare sector.

The consequence of shutting down 75% of the economy is that in the first quarter the economy contracted by 0.7%, and by 16.5% contraction in 2020. Unemployment reached a high of 17.7% in May, where 7 million people were unemployed. This table shows you that the COVID pandemic and the quarantines have led to a significant contraction of the Philippine economy in the first semester by 9%. Household final consumption in the first semester fell by 7.8%. However, government final consumption expenditure grew by 15.6% with the Bayanihan 1 and the budget of 2020 supporting the people and the economy.

Investments, as measured by capital formation, declined by 36.6%. Exports also declined by 21.4%, while imports also declined by 24.7%. On the other side, in the industrial or production side, only agriculture recorded a positive growth of 0.6%, while industry and services both declined. With 75% of the economy forced to shut down, because we prioritized the saving of lives, unemployment and underemployment increased sharply in the April Labor Force Survey which was conducted in May. The unemployment, in millions, increased from 2.3 million in April of last year to 7.3 million in April of 2020, bringing the unemployment rate to a high of 17.7%.

On the other hand, the underemployment rate- which measures those with jobs but lack income- increased marginally from 5.6 to 6.4 million. The underemployment rate of 18.9% is moderate, considering that the government and the private sector contributed donations and subsidies to help the poorest and low-income families.

As the quarantine restrictions were eased starting June, we saw a gradual recovery. In terms of the growth of the NGCP energy delivery, you can see a U-turn going towards just a contraction of 5%. The volume of manufacturing production has been improving, and in July, we saw -12%. The total merchandise exports have also taken a U-turn, and we are actually seeing positive exports to China in the latest month. Imports have also taken a U-turn. Our inflation remains low and stable due to recent reforms, including the Rice Tariffication law and adequate supply of basic commodities.

In the August inflation reported today, the overall inflation was 2.4% or at the lower-end of the BSP’s target range. Food inflation was actually lower at around 1.8% together with beverages, or 1.7% if without the beverages.

What we find in the last six months, is that the lower quarantine restriction has actually opened more sectors of the economy and helped bring back jobs. In May 1-15,  78.7% of the economy was put under ECQ, and only 21.2% was placed under GCQ. The result is a 16.5% decline of our GDP, a higher unemployment rate of 17.7%, and higher underemployment rate of 18.9%. However, between July 1-15, only 2.1% of the economy of the Philippines was placed under ECQ, 48.4% in GCQ and 49.5% in MGCQ or a lower restriction of quarantine.

The result is, we are seeing a significant decline in the unemployment rate to 10% from 17.7%, and also a decline in the underemployment rate to 17.3%. All in all, between April and July 2020, 7.5 million jobs were restored to the economy. This map gives you an idea of the quarantine status in May, where we saw the worst economic performance, where there are many reds and yellow for ECQ and GCQ. However, in July, we see many greens. The areas under MGCQ, and some in GCQ.

All these suggest that the quarantine restrictions will have a significant impact on the rest of the year. GDP growth is projected to be around -5.5% in 2020 with a band of -4.5 to -6.6% before recovering to around 6.5 to 7.5% in 2021 and 2022. The table here shows you the macroeconomic assumptions, which was explained by the BSP which I will skip.

We will remain vigilant against the risk to the growth outlook. From the domestic side, the key risks are the uncertainties brought about by the COVID-19 pandemic, subdued consumer and business confidence, the weather disturbance possibly because of La Niña starting September and October, animal-borne diseases like the African swine fever, disruption in transport value-chain and logistics, limited absorptive capacity of implementing agencies to implement, for instance, Bayanihan 2, and possibly labor market disruptions.

From the external side we also expect the weaker global economy, the geopolitical tensions, particularly around US and China and the lower remittance to affect our GDP and macroeconomic performance. We are responding, in the government, with a phased and adaptive recovery approach that prioritizes health, because this is primarily a health issue, and the recovery of consumer confidence.

Between March to May, Congress passed Bayanihan 1 and this is what we have been using to address the emergency stage. From June to December 2020, we are in the recovery stage and we will be using a combination of Bayanihan 2, the GUIDE, the FIST and the CREATE bills to help in the recovery of the country.

Starting next year, we will be focusing on the resiliency of the economy towards a healthy and more resilient Philippines, where the 2021-2022 GAA will play a significant role. We are leading in NEDA, together with the other agencies under the IATF, the RECHARGE Philippines towards a healthy and more resilient Philippines. Among the key short term responses are:

  1. Intensify the implementation of the Prevent, Detect, Isolate Treat and Reintegration (PDITR) strategy.
  2. Intensify information education and communication campaign for the PDITR strategy and how individuals and communities can contribute to the effort.
  3. Develop the PPE ecosystem.
  4. Implement a strategic stockpiling system of PPE and other essential goods with strong linkage to domestic manufacturers.
  5. Support the agriculture sector, including urban agriculture.
  6. Minimize disruptions in value chain and the logistics sector.
  7. Extend financial assistance, retooling and upskilling programs, alternative livelihood programs and job matching services.
  8. Provide support for flexible learning opportunities.
  9. Financial and technical support to MSME especially for digital transformation
  10. Improve in the digital infrastructure
  11. Continue implementation of projects on ecological integrity, in particular, solid waste management, hazardous waste, among others.
  12. Reopen safely and sufficiently the public transport system.
  13. Resumption of the Build, Build, Build program.

These are all captured in the Bayanihan 2 and the upcoming 2021 budget.

While we are seeing improvements in economic performance, there is still a case for reopening public transport. In August, the visit to public transport stations dipped again to -60%, but this is improving. So, it is not enough just to open the economy to bring people back to work, it is also important to revive the public transportation sufficiently and safely as possible.  There is also a case for helping people go back to work. The percentage of people actually going to work has dropped by 40%, many of them are walking or working from home, but we can still do more. One of our key recommendations to pursue more job creation is higher infrastructure spending. We will increase that from an estimated 4.2% in 2020, to  a higher 5.4% in 2021, and that would entail increasing the budget from 785 billion to 1.121 trillion in 2021.

Mr. Chair, these are the strategies on how we will aim to revive the economy. Our key legislations to support the recovery include:

  1. The passage of the Financial Institutions Strategic Transfer (FIST) bill
  2. The passage of the GFI Unified Initiative to Distressed Enterprises for Economic Recovery
  3. Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill
  4. The passage of the 2021 GAA

NEDA continues to pursue the liberalization of the economy to bring in more investments and jobs through the amendments of the:

  1. Public Service Act,
  2. Foreign Investment Act, and
  3. Retail Trade Liberalization Act.

In the coming few weeks, we will be presenting the updated Philippine Development Plan 2017-2022, where the theme will be a healthy and resilient Philippines, and this will capture our plan process in the next two years. With that, I end my presentation. Thank you very much.