The Start of the PH Economic Recovery
By Hanie Andrade
Ever since quarantine restrictions have eased with the lifting of ECQ, the state of the economy has generally improved. In comparison to the previous quarter, Q3 2020 showed better figures with regards to unemployment rates and GDP growth.
Employment during this period has statistically improved, with a lower unemployment rate and an increase in labor force participation. The unemployment rate was recorded to be 10 percent, 7.7 percent less than the previous quarter’s rate. An estimation of 4.6 millions individuals aged 15 and above were said to be unemployed. This is an improvement to April’s 7.3 million unemployed Filipinos. Adversely, the employment rate also increased to 90 percent, in comparison to April 2020’s 82.3 percent. While these figures prove to be better than the lowest economic period of the year, if compared to the employment data collected for July 2019, the current data is a representation of the vulnerability of employment during this pandemic.
The easing of restrictions and quarantine procedures are evident in the labor force participation rate (LFRP). During this month, the LFPR was recorded at 61.9 percent. As the ECQ was lifted last May, more employed individuals were able to actively participate in the labor market. If compared to the peak month of the ECQ, April 2020, 55.6 percent was recorded as the lowest LFPR in the history of the Philippine labor market. While it has increased, by gender, women had a lower rate as opposed to men. Women’s LFPR was recorded at 48.5 percent, whereas for men it was listed at 75.3 percent. This could be attributed to the possible job opportunities that have opened since the lifting of quarantine restrictions. What possible jobs are available for men but not for women? A few of these could be in the construction and transportation industry. Despite the disparity between the men and women’s LPFR, their employment rates both stand at 90 percent and their underemployment rate differ by 4.5 percent (with men being more underemployed than women). Taking into account the youth, the youth labor force participation rate of 38.9 percent for July 2020 has increased from 32.4 percent in April (PSA, 2020). The improvement in these figures are all linked to the ECQ and how our nation has transitioned to more lenient protocols with the General Community Quarantine.
Not only has the ECQ restricted millions of Filipinos to their homes, but it has also limited the capacity of the economy to grow. With its lifting, the GDP, one of the many indicators of economic growth, has statistically improved as well. During Q2 2020, our GDP was recorded to -16.9 percent, a record-breaking negative growth in decades. However, come Q3 2020, the national GDP increased to -11.5 percent. While this figure still represents a negative growth, it also represents an improvement. The top three actions that were involved in the increasing of GDP were: Financial and insurance activities, 6.2 percent; Public administration and defense, compulsory social activities, 4.5 percent; and Agriculture, forestry, and fishing, 1.2 percent.
Taking into account the GDP shares by Expenditure, Government Final Consumption Expenditure (GFCE) stood at 5.8 percent, while other shares still had a negative growth. Household Final Consumption Expenditure (HFCE), -9.3 percent; Gross Capital Formation, -41.6 percent; Exports, -14.7 percent; Imports, -21.7 percent. Similar to the Q2 2020 data, GFCE had the highest growth, with HFCE still at a negative path of growth. In a time of uncertainty, many are still cautious with where and how they spend their money, as evident in the HFCE data (PSA, 2020).
Despite the improvement in these figures, the economy is still struggling. Based on 2019 figures, about 99.5 percent of establishments in the country consist of MSMEs; Micro enterprises constitute 89 percent, Small enterprises constitute 10 percent, and Medium enterprises constitute 0.5 percent. Before COVID hit the economy, MSMEs shared 62.4 percent of the country’s total employment, and 60 percent of domestic exporters belong to the MSME category (DTI, n.d.). However, according to a paper released by the ADB, 70.6 percent of MSMEs were forced to temporarily close as a result of the pandemic. This study concluded that out of the four countries involved (including the Philippines), it is the Philippines that was the most affected by COVID with regards to its impact on businesses and households. It also had the highest percentage of temporary staff cuts at 66.2 percent, followed by Laos, Indonesia, and Thailand respectively. It is most important to note the financial condition of MSMEs. Between March and April, 36.7 percent said that they had no cash and savings, whereas 42.1 percent said they would run out of funds (cash) in a month (Rivas, 2020).
Philippines’ MSME financial condition statistics (represented by PHI). Taken from https://www.rappler.com/business/adb-study-philippines-closures-layoffs-peers-coronavirus-pandemic
As a way to address the decline in the Philippines’ economy, lawmakers have decided to make a bill that seeks to stimulate the economy. It is known as the Corporate Recovery and Tax Incentives for Enterprises or the CREATE bill. This bill is the second version of CITIRA and its goal is to improve fiscal incentives and at the same time, lowering corporate income taxes (CIT). From 30 percent, this bill seeks to reduce CIT to 25 percent for large corporations both local and foreign, whereas for small and medium businesses, it will be 20 percent given that they have a net taxable income that is below PHP 5 million and total assets less than PHP 100 million (Galang, 2021).*
Under CITIRA, the Philippines is imposing the highest CIT rate in ASEAN. This has taken a toll on MSMEs as many of them have been largely affected by the pandemic. Through the CREATE bill, with the reduction of CIT, government revenues are estimated to be reduced at around PHP 40 billion. This can then be used by enterprises, especially MSMEs, to continue to fund their operations during these trying times.
While the figures mentioned above show a visible sign of improvement from Q2 2020 data, the economy still has quite a long way to go before it is able to fully recover from the damage that this pandemic has caused. With the help of the CREATE bill and other actions taken by the government to improve our economic condition, despite the problems that we are currently facing, we are on the beginning of the road to economic recovery. However, it also important to note that while many are focused on stayed afloat during this pandemic, one should do so with COVID-19 preventive measures in mind.
* To read more about the details of this bill, you may visit this link: http://admuaea.org/2021/01/31/createing-relief-during-the-covid-19-pandemic/
This article is part 3 of the Philippine Economy Series.
Department of Trade and Industry. (n.d.). 2019 MSME STATISTICS.
Galang, B. (2021, February 13). CREATE-ing opportunities through better fiscal
incentives, lower corp taxes. CNN Philippines. https://cnnphilippines.com/news/2021/2/13/create-bill-explainer.html
Philippine Statistics Authority. (2020). Employment Situation in July 2020.
Philippine Statistics Authority. (2020). The Philippines records a GDP growth rate of -11.5
percent in the third quarter of 2020. https://psa.gov.ph/content/philippines-records-gdp-growth-rate-115-percent-third-quarter-2020
Rivas, R. (2020, September 16). PH with most business closures, layoffs vs peers
during pandemic – ADB. Rappler. https://www.rappler.com/business/adb-study-philippines-closures-layoffs-peers-coronavirus-pandemic
Tax Reform Department of Finance. (n.d.). Package 2: Corporate Recovery and Tax
Incentives for Enterprises (CREATE) Act. https://taxreform.dof.gov.ph/tax-reform-packages/p2-corporate-recovery-and-tax-incentives-for-enterprises-act/