Fiscally stimulating enough?

PHILIPPINES - In Brief 06 Jun 2020 by Romeo Bernardo

---

The government statistics bureau announced Friday that the unemployment rate shot up to 17.7% in Q2[1] vs. 5.3% in Q1. It attributed the record high joblessness, about 7.3 million people (up from 2.4 million in Q1), to the enhanced community quarantine (ECQ) in place at the time to contain the covid-19 outbreak. We expect this first official data of the economic cost of the ECQ to fuel rising clamor for more fiscal stimulus. Will economic managers yield? It is not that economic managers reject the idea of fiscal stimulus. In fact, both the finance and planning secretaries acknowledge that government needs to step up spending to bring about a V-shaped economic recovery. Yet, given how the budget deficit is expected to balloon with a sharp fall in revenues, they would rather that stimulus be provided at minimum on-budget cost to government. Hence, even though Planning Secretary Karl Chua, formerly deputy finance secretary, is proposing a stimulus package worth 4.4% of GDP, the upfront fiscal cost amounts to less than 1% of GDP. The rest, 3.5% of GDP, is expected to come from off-budget lending and guarantees plus looser monetary policy and regulatory relief to prod banks to lend to cash-strapped businesses. Many find the economic managers’ fiscal conservatism, at a time when countries with fiscal space are doing whatever they can to prop up demand, misplaced. Indeed, some 44 business groups have found the “ARISE” bill that the House of Representatives just passed more to their liking. ARISE has a headline number of P1.3 trillion, about half of which (3.6% of GDP) represents new spending for this year, and covers costs of mass testing, wage and other forms of subsidies, l...