The Philippine Statistics Authority (PSA) reported today that the second quarter gross domestic product (GDP) declined by a huge 16.5 percent. The contraction – the largest quarterly decline since the country started recording quarterly GDP figures in 1981 – put the Philippines officially into a technical recession after the economy fell by 0.7% in the first quarter of the year.
In his last State of the Nation Address (SONA), Pres. Duterte confidently proclaimed that under his leadership, the country is “in a better position to weather the crisis caused by the COVID-19 global pandemic”. Nothing could be be farther from the truth. With the COVID-19 crisis, the stage is set for what could be the worst period so far in the country’s state of permanent economic decay. Compared to its neighbors in the region, the Philippines is in fact most vulnerable to the economic impact of the pandemic.
This as the traditional and illusory growth drivers such as labor export earnings that for so long used to conceal the deterioration of the Philippine economic crisis teeter on the edge of collapse. Multilateral lenders, credit rating agencies, and the economic managers all project that the gross domestic product (GDP) will contract this year as the pandemic ravages production, consumption and trade, and wipes out millions of jobs and livelihoods.
Even before COVID-19, GDP growth under Duterte was already on a decelerating trend as the domestic economy remained dependent on an increasingly uncertain global economy wrecked by and still reeling from a series of crises. From a 7.1% expansion in 2016, GDP growth steadily slowed down to 6.9% in 2017; 6.3% in 2018; and 6.0% in 2019. There are several factors behind the deceleration. One is the slower growth in domestic consumption, which historically comprises about three-fourths of the GDP and thus closely mirrors GDP growth trends. From a 7.1% growth in 2016, household final consumption expenditure (HFCE) slowed down to 6.0% in 2017 then further to 5.8% in 2018 before barely recovering to 5.9% last year. In the latest PSA report, HFCE fell by 15.5 percent.
What has been driving domestic consumption in the country for decades are the remittances from Filipinos earning abroad. Based on World Bank data, the Philippines ranked fourth worldwide in terms of migrant remittances inflows in 2019. But relative to its economy, the Philippines is the most dependent on such inflows with remittances accounting for 9.9% of its 2019 GDP. The three countries ahead of the Philippines in the list of global top earners of migrant remittances last year have a far smaller GDP ratio. World’s number one India has a remittances-to-GDP ratio of just 2.8%; China has 0.5% while Mexico, 3.0 percent. In Southeast Asia, the Philippines has the largest remittances-to-GDP ratio where the average ratio of its neighbors is just 3.3 percent.
To be sure, Duterte inherited the defective four-decade old labor export strategy. But contrary to his campaign rhetoric of bringing home the Filipino diaspora, he did not only perpetuate the defective policy, he is also further institutionalizing the strategy in lieu of sustainable domestic job creation. Since taking over, his administration has been working hard to secure more overseas employment visas; has created a bank specifically intended for overseas Filipino workers (OFWs); and has been pushing for a Cabinet-level OFW department.
But as the world crisis deepens with every flare-up of economic recession and destruction of productive forces in the centers of global capitalism and their neo-colonies, the labor export strategy has been standing on more and more shaky ground. Migrant remittance inflows this decade have been growing annually by an average of just 5.8%, twice slower than its pace in the 2000s (11.7% yearly growth) and thrice slower than in the 1990s (19.8%). Under Duterte (2016-2019), remittances are flowing at a much slower pace with an annual expansion of 4.2 percent.
With COVID-19 further sparking off labor protectionist policies that are already on the rise even before the pandemic, the backward Philippine economy faces greater difficulties in the coming months and years. The Labor department estimates that OFW remittances could drop by as much as 40% this year due to COVID-19. Some 345,000 OFWs have already been affected by the pandemic that would add to the already massive and burgeoning domestic joblessness.
Domestic consumption should be fueled by locally-created jobs and locally-generated incomes, both of which have always been problematic in the Philippines and now made drastically worse by the pandemic. The grossly understated official unemployment posted 7.3 million jobless workers in government’s April 2020 survey, an all-time high based on government records. Official unemployment rate more than tripled from 5.1% in April 2019 to 17.7% in April 2020, according to the Philippine Statistics Authority (PSA).
However, the actual unemployment situation could be way bleaker than what official data claim, which exclude from the labor force and do not count as jobless those workers who did not look for work in the last six months prior to the government survey or are unable to immediately take up work. Note that adult joblessness as measured by the polling firm Social Weather Stations (SWS) averaged 9.3 million workers or an unemployment rate of 19.9% in 2019, already much higher than the COVID-19 jobless data of government.
Indeed, a problematic technical definition of unemployment could not hide the reality of a chronic crisis in job generation that Duterte, like his predecessors, has failed to reverse by strengthening in a sustained manner domestic productive sectors such as industry and agriculture. Long-term trends show a worsening local unemployment situation. Based on SWS surveys, the annual average rate of joblessness more than doubled in the past three decades – from 9.8% in the 1990s to 18.7% in the 2000s and then further up to 23.1% in the 2010s. Under Duterte (2016-2019), the annual unemployment rate is averaging 21% using SWS figures.
Not only has Duterte failed to create enough and productive jobs to boost domestic consumption. His policies and programs even further eroded the capacity of ordinary Filipino households to consume. The minimum wage, for instance, has increased the slowest during his administration compared to other Presidents under the Wage Rationalization Act of 1989.
Since Duterte took over, the nominal minimum wage in NCR, for instance, has increased by only 9.8%, based on data from the National Wages and Productivity Commission (NWPC). At a similar or comparable point during their terms, the minimum wage has increased by 16.1% under B. Aquino III (2010-2014); 39.0% under Arroyo’s second term (2004-2008); 13.1% under Arroyo’s first term (2001-2004); 17.0% under Estrada (1998-2000); 39.8% under Ramos (1992-1996); and 32.6% under C. Aquino (1989-1990).
At the same time, Duterte pushed his highly contentious tax reform program (TRAIN Law), which imposed additional taxes on basic goods and services, while continuing neoliberal policies like deregulation and privatization that make the cost of living more unaffordable for most Filipinos.
Under Duterte, the pump price of gasoline has already jumped by about 31.3%; diesel, 40.3%; and LPG, 31.8% to 34.6 percent. Power rates (Meralco) have increased by around 3.5% for households consuming 70 kilowatt-hours (kWh) to 4.6% (200 kWh) while water rates have increased by about 7.0% (Maynilad basic charge) to 14.6% (Manila Water). The cost of public transport has likewise jumped by around 18.1% (ordinary bus) to 33.3% (taxi).
Basic food items like rice has increased its retail price by 2.7% (regular-milled) to 10.0% (well-milled); fish, 25.0% to 28.6%; and meat, 35.7% to 63.6 percent. According to a study, the cost of basic food items comprises 62.3% of the current average minimum wage in the Philippines, the fourth largest in its survey of 54 countries, and higher than neighboring Thailand (51.6%), Vietnam (50.2%) and Malaysia (32.4%).
COVID-19 is wreaking havoc on a Philippine economy that has long been ravaged by underdevelopment and flawed economic programs. Amid a raging global crisis that is obliterating whatever is left of the limited opportunities for Filipino families to earn a living, the Duterte administration’s severely lacking response to the pandemic including social amelioration, combined with an increasingly oppressive political environment, creates conditions for a perfect storm of social unrest. ###
(This article is an updated version of an article first published by Bulatlat.com)