Philippines Faces U-Shaped Recovery: Central Bank Governor


(Bloomberg) -- The Philippines is poised for a U-shaped economic recovery in 2021 after a likely recession this year as the pandemic halted most of the economy since mid-March, central bank Governor Benjamin Diokno said.

Growth will probably bounce back to about 7.7% in 2021 after an estimated 0.2% contraction this year as government policy support measures “gain traction,” Diokno said in a text message to reporters. “The strong recovery is based on the assumption that the pandemic is contained in the second half of 2020.” The country won’t risk a debt default given its strong fiscal position, he said.

Any recession caused by the lockdowns, compounded by disruptions to global supply chains, would be the first since 1998. The government extended for a second time the restrictions originally set to last about a month in major economic centers.

“The Philippines was in a sound fiscal and monetary state when the pandemic hit the country,” Diokno said. “The budget deficit was modest. The revenue base has been expanded with a series of new tax laws and improved revenue administration.”

More Comments by Diokno:

  • The economy could slow down in the first quarter this year and contract in the second and third quarters, before gradually recovering in the fourth
  • Inflation is expected to average at the low-end of the target range at 2% in 2020, down from the previous forecast of 2.2%, due to the continued collapse in global crude oil prices, the decline of non-oil prices and the effect of the virus
  • The average inflation forecast of 2.45% for 2021 is slightly higher than the previous prediction due to the projected strong recovery in domestic activity and higher liquidity growth
  • Fiscal stimulus will counter the pandemic and an increase in the deficit-to-GDP ratio from 3.2% to 5.3% will drive the debt-to-GDP ratio from 40.5% in 2019 to 47%, which is “modest by international standards”
  • Gross international reserves are set to exceed $90 billion by end-2020
  • The Philippines is one of the few developing countries that can borrow from multilateral institutions at “largely concessional rates,” the governor said
  • The country has already raised $6.9 billion of the virus-related loans from multilateral and bilateral sources as of April 24
  • Monetary and financial conditions are sound and stable following a series of reforms that made the banking industry sound, sufficiently capitalized, with a lot of buffers

©2020 Bloomberg L.P.

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