We are traversing a path clouded by a brewing storm. Amid surging cost of goods in the local market, the World Bank has reported a risk of a global recession this year as countries struggle to keep inflation under control, thus disrupting supply and slowing their economic growth. While the country has eased restrictions on mobility for businesses and workers to stimulate the economy, we are increasingly struggling to make ends meet. 

The government has assured Filipinos that we will weather the recession, similar to when they promised we would not suffer much under COVID-19—and we know how they ended up backtracking on this. As basic necessities become inaccessible, it would take more than lip service from the authorities to secure the common Filipino people.

Headwinds

The administration attempts to downplay the problem of a recession when they confidently assert that the crisis would not impact the country.

But developing economies are projected to average 2.8 percent per-capita income growth for the next two years, a percent lower than the average growth from 2010 to 2019, according to the World Bank. This will likely result in weaker investments in these countries and higher interest rates for the debts of developed economies.

And while leading exporters like first-world countries would indeed be the ones primarily affected by the recession, importers like the Philippines may also suffer. Finance Secretary Benjamin Diokno said that the country has buffers against recessionary forces since we are "more or less a domestic-driven economy," and the Philippines has increased its quality of overseas workers. He also says that the country's gross international reserves can still cover seven and a half months of import. 

While true, this does not mean that we will be safe from the impacts of the recession. During a global recession, the rest of the world buys less of our exports because of the declines in their income, explains Maria Socorro Gochoco-Bautista, Professor Emeritus from the UP School of Economics. This in turn causes a fall in our income due to lesser demand for products.

If the US, China, and Japan, who are top buyers of our exports, suffer from the recession, we could lose significant income value. And a lesser income for the Philippines could result in our inability to buy necessary imports, such as inputs to production and agricultural products. 

Given that the Philippines is not entirely sufficient for supplying primary agricultural commodities, imports serve as a way to augment supply in the local market to prevent prices from skyrocketing, albeit only temporarily, says Gochoco-Bautista.

The Philippines imports electronics and mineral fuels needed for its industry. Last December, we imported USD 6.59 billion of raw materials, and intermediate and capital goods, according to the Philippine Statistics Authority (PSA).  In 2021, the Philippines had to import 2.8 million metric tons of rice because of the deficiency in domestic harvests. In the same year, we also had to import 31.8 percent of our onions, according to the PSA.

The looming recession could exacerbate inflation in local markets if imported goods become more costly, and this spells doom for an ordinary Filipino. 

Leaky Bucket

In the face of recessionary forces, the economy’s resilience depends on the policies made by the government. 

“The question is not only whether or not there will be a global recession but also whether the shock that hits the country is a real one or a financial one … Even if another real shock or any type of shock were to hit us in the future, what we do today to build economic resilience will matter,” says Gochoco-Bautista. 

During the 2008 Global Financial Crisis, the Philippines was relatively unaffected since the country did not own mortgage assets in the US, and we were also not a large recipient of capital inflows from foreigners at that time, said Gochoco-Bautista. Still, we experienced a sharp deceleration of growth in 2009, decreasing the real mean income of Filipinos by 2.1 percent, and increasing poverty incidence by 1.6 percent, according to the Asian Development Bank.

In an effort to spur the economy through government spending, then President Gloria Macapagal-Arroyo adopted the Economic Resiliency Plan which included giving out food subsidies and cash transfers. To raise income from export, Arroyo also deregulated trade barriers, such as the Japan-Philippines Economic Partnership Agreement.

But the pandemic-induced crisis is different. 

The Duterte administration held on to its strong macroeconomic fundamentals heading into the pandemic. Before COVID-19, the country had relatively stable inflation rates, a 6.7 percent increase in growth domestic product (GDP) from 2019, and a record of the highest ratio of revenue to GDP at 16.1 percent since 1997.

However, a real crisis such as a global pandemic cannot be dealt with alone with macroeconomic fundamentals. There must be fiscal policies that tackle the very problem—the spread of the virus. 

Despite a strong economy, government spending was misdirected, according to a study by the UP School of Economics. Instead of building laboratories and allocating funds to public health, the government focused on the Build, Build, Build program. According to the Department of Budget and Management's annual report last 2020, P989.3 billion was appropriated towards infrastructure spending. Meanwhile, the current health expenditure for 2020 stood at P895.8 billion.

Since the government failed to quickly contain the virus, businesses and workers were delayed in getting back to normal, and the economy was slow to rebound from the effects of the pandemic. As we strive to bounce back from the health crisis, Marcos Jr.’s administration continues to struggle in meeting the needs of the Filipinos. 

Last January 2023, the inflation rate went as high as 8.7 percent, the fastest spike since November 2008. While the Bangko Sentral ng Pilipinas lifted its key interest rates to stabilize prices, fiscal action is still needed from the government. Yet, the president’s response has been characterized by delayed actions, if any. Marcos Jr. focused on state visits and foreign investment pledges, none of which directly answer the concerns of Filipinos being hounded by costlier living expenses.

Weathering Storms

It then boils down to the government’s actual plans to create countermeasures that will keep the economy stable and prevent Filipinos from further spiraling down into poverty.

To achieve low inflation rates and foster economic growth, policies should focus on boosting local production and capital allocation, according to the World Bank. Investing in health, education, and raising agricultural productivity must also be prioritized to attract more investors. 

For Gochoco-Bautista, being open to trade and resisting protectionist policies on industries will also help the country weather the looming crisis. But opening trade must be supported by strong local production to become competitive in global markets. Otherwise, local producers will bear the brunt of low selling prices, which was the case when the Rice Tariffication Law (RTL) was passed in 2019. 

Farmers group Kilusang Magbubukid ng Pilipinas (KMP) has continuously pushed for the repealing of the RTL citing the average farmgate prices of dry rice plummeting to as low as P15.55 per kilo in 2020. Far from the government’s promises that income from tariffs will aid in developing the agricultural sector, local farmers still struggle to get by without proper subsidies.

KMP’s calls involve creating better programs for food security, food self-sufficiency policies, and genuine land reform to boost production and productivity. Fisherfolks are also pushing for stricter policies on the commercialization of coastal areas, especially from the Scarborough Shoal to increase fish supply in the market. 

Empty assurances will not help people bounce back from the pandemic and survive inflation. As global economic shocks threaten to affect us, it is about time the Marcos administration finally faces the storm of problems hounding the common Filipino head-on. ●