‘Spending priorities need tweaking amid rising Covid cases’

WITH 5,000 new Covid-19 cases reported over the weekend, local economists recommended that the government tweak its spending priorities to better respond to the health crisis.

Economists stressed the need to “make every penny count” especially at this time when Covid-19 cases are rising and a new stimulus may be needed to help Filipinos weather the crisis.

The Department of Health (DOH) reported on Saturday that new Covid-19 cases reached 5,000. This is the highest since August 2020 when the country recorded a total of 5,277 new cases.

“I think the current administration can try to be austere in sectors other than health. The country needs to pool enough resources to address our long-delayed medical response to the pandemic,” University of Asia and the Pacific School of Economics Dean Cid L. Terosa told BusinessMirror. “Cost effectiveness and benefit incidence matter more now.”

Former University of the Philippines School of Economics Dean Ramon Clarete agreed and told the BusinessMirror that making every peso count should always be the national government priority.

Prioritize spending

Clarete said relying on borrowings is not enough to meet all the government’s needs, especially in this crisis. This now requires the Duterte administration to prioritize its spending.

“If spending is necessary it should be made, otherwise the economy and society lose the net benefit of spending (on) what is necessary. Since net benefit is positive, said spending does not add fluff in prices,” Clarete said.

“The question is, who can lend us the money for all the necessary spending that we can’t afford given what we have? This then calls for prioritizing all the necessary expenditures to fit what we can afford with our present and borrowed resources,” he added.

Prioritizing resources, in the view of Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III, could mean reducing spending for funding to the police and military as well as to intelligence and counterinsurgency.

These funds, Sta. Ana told the BusinessMirror, should then be channeled to the country’s health and social protection needs.

“Spending for people’s relief and health should have been sustained,” Sta. Ana said. “Fiscal policy has to be bold and aggressive. The people need relief, vaccination and health care; the economy needs stimulus.”

Borrowings

Former Dean of the University of the Philippines School of Labor and Industrial Relations Rene E. Ofreneo agreed and said the national government should avoid spending on “wasteful projects, borrowing just to keep the Central Bank happy with its reserves.”

Ofreneo said stimulus spending can be done to finance efforts to rebuild-renew-retrofit communities of the poor. This includes urban poor, rural poor, periurban poor, coastal poor, and upland poor.

He added that the national government should also spend on community labor through cash-for-work programs as well as investing in local resources by not importing materials to undertake the Build, Build, Build projects.

These, he said, will enable the country to meet its health preparedness, community cohesion, and disaster readiness needs.

“Stimulus (can be extended) by providing more funds for people’s amelioration, job creation and health spending. Just like what the US and other countries are now doing,” Ofreneo said.

“Of course, this will lead to more debt. But that’s precisely the point of Keynesian-style spending, that is, spend on items that will reinvigorate the economy and make it grow,” he added.

De La Salle University economist Maria Ella Oplas told BusinessMirror that given the country’s circumstances, borrowings are necessary, especially when securing and distributing vaccines.

On Friday, the government secured $1.2 billion worth of loans from three multilateral banks, World Bank, Asian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB) to finance the country’s vaccine needs.

Oplas added that the country still had a low debt-to-GDP ratio compared to the international threshold. This should be enough to assure the public that the country’s debts remain manageable at this time.

Nonetheless, Oplas said, borrowings and all government spending should be maximized by ensuring that these go to projects that are effective and done transparently.

“Considering that the elections are around the corner, one can’t help but think about the possibility of the public coffers being used or diverted to private gains,” Oplas said.

“So, I would go for a more clearer, transparent, evidence-based, strategic measure to address the health crisis before even considering borrowing again,” she added.

Meanwhile, Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang agreed and told the BusinessMirror that the government has ample fiscal space.

Ang said efforts to address the health crisis can be financed through the unused Bayanihan 2 funds. However, the challenge is the lack of absorptive capacity.

“Their challenge is basically absorptive capacity,” Ang said. “In order to address this, there is a need to ensure that their targets are met.”

Bayanihan 3

For economists like Foundation for Economic Freedom (FEF) President Calixto V. Chikiamco, given this fiscal space, it’s now time to reconsider the Bayanihan 3 which will help mitigate the economic scarring or “hysteresis” that could happen.

Hysteresis happens when the skills of workers—unemployed over a long period of time due to a recession—deteriorate, making them unemployable.

Chikiamco also explained that hunger causes malnutrition. If Filipinos become malnourished, this would have a long-term effect on the “productive potential” of workers and their families.

“At the same time, the government should be more competent in procuring vaccines and implementing a vaccination program in order to prevent future spikes of infection. It is very slow and incompetent in rolling out a good vaccination program,” Chikiamco added.

Unionbank Chief Economist Ruben Carlo Asuncion supported the release of a Bayanihan 3, calling it a “timely fiscal stimulus” that can be done given that the 2021 budget is still intact.

Asuncion believes the government has enough fiscal space for the measure. What is important now is to program these funds for projects that would have the potential to address the current wave of cases, he added.

Ofreneo said the proposal of Marikina Rep. Stella Luz A. Quimbo is the closest to his concept of stimulus spending.

He said under the P1.3-trillion Accelerated Recovery and Investments Stimulus for the Economy (Arise), assistance will be provided to micro, small, and medium enterprises (MSMEs). While this has been included in Bayanihan 1 and 2, the achievements of this program were not ideal.

“So far, the Arise proposal (unacted) of Rep. Quimbo comes closest to our concept of ideal stimulus spending. It wants to target assistance to the MSMEs,” Ofreneo said.

“For bureaucratic and other reasons, it’s rare for MSMEs to take advantage of loan and wage assistance. And even in the area of social amelioration assistance, there are a lot of exclusions as well as scandals,” he added.

The Arise bill was approved last year to protect and assist up to 15.7 million workers, create 3 million short-term jobs, and 1.5 million infrastructure jobs over three years, and help up to 5.57 million micro, small, and medium enterprises, both formal and nonformal.

For this year alone, the spending plan includes assistance to various sectors such as MSMEs (P10 billion); tourism (P58 billion); industry and services (P44 billion); transportation (P70 billion); agri-fisheries (P66 billion); and funding for the National Emergency Investment Vehicle (P25 billion) to “minimize permanent damage to the economy.”