Stratbase Brief: "Navigating Uncertainty, Delivering Results"

In our continuing campaign to look at issues beyond the news cycle, Stratbase produces a bi-monthly brief on one specific issue or topic. The aim is to provide context in which to understand a given issue and to draw out its significance to the political, economic, and business landscapes.?

Navigating Uncertainty, Delivering Results

New expectations and aspirations emerge every time a new leader rises to power.

The next set of leaders that will take the reins of the Philippine government starting June 30, 2022 will inherit the enormous task – perhaps the most challenging in recent years – of rebuilding a nation battered by a prolonged pandemic that began in early 2020. Social and economic hardships such as poverty, joblessness, and the rising costs of basic goods and services, on top of the national government’s worrying record-high debt levels, pervasive and deep-rooted corruption in the public sector, and the spillover effects of external factors such as the Russia-Ukraine conflict, are among the challenges that the country’s next chief executive must bravely face and address.

The recently-held national and local elections last May 9 is a consequential milestone that will shape the country’s growth trajectory for the next six years. Ultimately, the government’s decisions and actions will directly affect the everyday lives of millions of Filipinos. Hence, there would be overwhelming and tremendous pressure on the part of the incoming administration to not only meet the public’s expectations, but also to perform better than its predecessors.

Addressing the Lingering Economic Challenges

The effects of the COVID-19 pandemic in the Philippines have partially subsided. Since early March 2022, COVID-19 restrictions have been eased in many parts of the Philippines, including the National Capital Region (NCR), after being downgraded to Alert Level 1. The number of daily COVID-19 caseloads have shown a steady decline as the new cases on May 12 was only 139, far from the record-high of nearly 40,000 cases in January 2022. As of early May 2022, over 60% of the country’s population has been fully vaccinated, while around 12% has received their booster shots. With the easing of COVID-19 restrictions, millions of people actively took part in campaign rallies to show their unwavering support to their candidates.

Encouragingly, the Philippine economy continues to show signs of a strong recovery despite the intermittent COVID-19 surges and localized lockdowns. According to the Philippine Statistics Authority (PSA), the economy expanded by 8.3% in the first quarter of 2022, faster than the previous quarter’s 7.8%. The country’s unemployment rate also eased to 5.8% in March 2022 – translating to 2.87 million – while the employment rate increased to 94.2%, the highest since April 2020.

In spite of these positive developments, possible risks remain that may hinder the country’s growth and affect the lives of millions of Filipinos in the years to come. As the Philippine government had to resort to additional borrowings for its COVID-19 emergency response measures, the country’s mounting debt will ultimately be paid for by Filipinos through new or higher taxation. In fact, the latest data from the Bureau of the Treasury (BTr) shows that the national government’s total outstanding debt as of March 2022 had ballooned to a staggering new record-high of PHP 12.7 trillion, accounting for 63.5% of the country’s GDP, the highest in 17 years. Moreover, the inflation rate for April 2022 exceeded government targets as it swelled to 4.9% – the highest in more than 3 years – due to the rising prices of oil and food.

At this point in time, as the country continues to feel the lingering impacts of the COVID-19 pandemic amid a transition to a new government, the reality is that Filipinos on the ground are very much concerned with their economic needs and well-being. In its survey conducted in March 2022, Pulse Asia Research, Inc. found that the country’s most urgent national concerns were mostly economic in nature. The top concern was controlling inflation (58%), followed by increasing the pay of workers (43%), creating more jobs (31%), reducing the poverty of many Filipinos (31%), and fighting graft and corruption in government (26%). Another Pulse Asia survey in February 2022 showed that the following were identified by Filipinos as the top national concerns that a presidential candidate must urgently address: controlling inflation (49%); improving/increasing the pay of workers (40%); fighting graft and corruption in government (32%); curbing the widespread sale and use of illegal drugs (30%); reducing poverty of many Filipinos (26%); and creating more jobs (26%).

Indeed, the next administration will shoulder all the burdens inherited from the outgoing Duterte administration, principally in terms of pandemic response, record national debt, high inflation, unemployment, poverty, and corruption in government.

The People’s Choice

The recently-held national and local elections brought to a close a campaign season characterized by passionate supporters and millions of new voter registrations. Supporters of the candidates throughout the campaign demonstrated strong commitment to their causes.?

The 2022 election was fought and won in the digital space. Former senator Ferdinand “Bongbong” Marcos, Jr., who leads the presidential race based on the partial and unofficial tally from the Commission on Elections (COMELEC), utilized social media to its full extent in order to influence voters and ultimately gain their vote of confidence. As of the morning of May 10, 2022, Bongbong Marcos has received approximately 31 million votes, whereas opponent Maria Leonor “Leni” Robredo has received about 15 million votes, with more than 96% of precincts accounted for.

Marcos benefitted from a slick social media operation that allowed him and his running mate, Sara Duterte-Carpio, to provide voters with an easily digestible policy agenda: unity. Voters were wooed by the Marcos-Duterte campaign’s promises to unite Filipinos while continuing to build on the achievements of outgoing President Rodrigo Duterte.

Consistent positive messaging surrounding unity and the return to a supposed past golden age for the Philippines has carried Bongbong Marcos within touching distance of the presidency. However, promises of unity are unlikely to satisfy investors – domestic and international. In the coming weeks and months, investors will look for assurances that the new administration will be staffed by competent economic managers.

A concrete, technical policy agenda authored by the Marcos administration should help to ease uncertainty within the business community concerning the direction of the new government. The concern of an administration composed of political allies rather than civil servants will persist until appointees are publicly announced. Initial Philippine Stock Exchange losses in the aftermath of the election may possibly reflect an early lack of confidence among investors in the absence of a clear policy agenda.

Specifically, observers will pay close attention to whomever is appointed as the Secretary of Finance, a post that demands expertise and a high level of competence. In the same way Secretary of Finance Carlos Dominguez III’s appointment by President Duterte helped allay investor concerns, the Marcos administration could help shake off early signs of uncertainty by appointing a widely-respected Secretary of Finance. The first 100 days of the Marcos-Duterte presidency should offer much-awaited answers on the economic direction of the country for the next 6 years. As the Duterte administration begins the transition process, business leaders and commerce chambers are in a wait-and-see mode.

Challenges Ahead

In 2016, President Rodrigo Duterte inherited from then outgoing President Benigno Aquino III an economy in the peak of health, characterized by high GDP growth, low level of government debt, high foreign direct investments, low levels of corruption, and a more transparent government.

Fast forward to 2022, presumptive President Marcos will inherit a scarred economy in recovery mode, a sense of uncertainty amongst foreign investors, and unprecedented government debt. Marcos’ landslide victory at the polls means he has received the country’s mandate to serve. But conversely, the president-elect will face intense pressure from his supporters to deliver on grand promises.

A high level of care in crafting economic policy is urgently needed. The Marcos administration will be forced to work hard in order to assure onlookers that it is capable of addressing economic challenges. In order for the Philippines to retain its current credit ratings, a comprehensive plan to manage government debt will be anticipated. However, as data from the first quarter of 2022 shows, with 8.3% economic growth, the country’s economy is brimming with potential and can be a powerful economic engine if optimized through sound economic policies.