COVID’s economic cost to hit P41T
Economists have warned of the possible “long-term economic scarring” for the Philippines if the pandemic drags on. — PHILIPPINE STAR/ MICHAEL VARCAS
THE TOTAL ECONOMIC cost of the coronavirus pandemic and lockdowns may reach P41 trillion over the next four decades, the National Economic and Development Authority (NEDA) said.
The economy is now expected to return to the pre-pandemic growth trend after 10 years, as consumption and investments will likely remain sluggish, according to the NEDA presentation obtained by BusinessWorld.
Socioeconomic Planning Secretary Karl Kendrick T. Chua said the cost of the pandemic and quarantines on society is estimated to have reached P4.321 trillion in 2020. This is measured through the net present value (NPV) terms, or the difference between the present value of inflows against the value of outflows for a certain period of time.
The economic cost of the pandemic is estimated to rise by another P37.044 trillion over the next 10 to 40 years in NPV terms, mainly due to the projected heavy losses in private investments and human capital gains.
In a Viber message on Tuesday, Mr. Chua said the 40-year period is equivalent to the average working life of a Filipino from age 22 to 62. He said NEDA conducted the study for six months starting January.
Mr. Chua in his presentation said the size of the Philippine economy may have grown by 9.5% to P21.4 trillion in 2020 had the COVID-19 pandemic not occurred. However, due to the pandemic, the size of the economy shrank by 8.1% to P17.9 trillion last year from P19.5 trillion in 2019.
“Consumption and investment will be lower in the next 10 years due to lower demand in sectors that require social distancing (e.g., amusement, tourism, restaurants, public transportation). Consequently, tax revenues will be lower,” Mr. Chua said in the presentation.
“After the 10th year, the economy is expected to converge to the pre-pandemic growth path,” he added.
Losses in private investments would have the biggest impact on present and future generations, followed by unrealized human capital investment gains and weak consumption, according to NEDA estimates.
“Foregone consumption and investments in 2020 will result in lower capital accumulation in the future… (This) will result in lower financial returns and lower economic benefits for the people,” NEDA said.
It attributed the decline in consumption and investments to social distancing rules, lackluster business and consumer confidence and rules that prevent children from going out.
The economy may miss out on P25.8 trillion in consumption, investments and returns over the next four decades, after already losing P3.92 trillion in 2020 due to the strict lockdowns. Foregone investments and returns alone would reach P21.33 trillion in 40 years.
“It may take 10 years to reach pre-COVID-19 trajectory,” Mr. Chua said.
Foregone tax revenues for the government could hit P1.206 trillion in a decade as it collects less income taxes from pandemic-hit companies and individuals and less sales taxes. In 2020 alone, foregone tax revenues reached P782 billion.
The Philippine economy also stands to lose heavily due to the severe impact of COVID-19 pandemic on human capital investments, particularly on education and the health sector.
NEDA estimated foregone income from human capital investment and returns could reach P15.528 trillion in NPV terms over the long run.
Two-thirds of the projected losses are mainly from the impact on the education sector. The Philippines has not allowed in-person classes since March 2020, although the government has approved a pilot test for face-to-face classes in low-risk areas.
“The estimated cost of face-to-face school closure is P11 trillion in lost wages over a 40-year period,” Mr. Chua said.
NEDA noted the estimated cost of COVID-19 and non-COVID-19 diseases will reach P4.5 trillion over a 40-year period. This includes foregone wages from premature deaths, lost productivity due to illnesses and additional medical expenses.
“Life expectancy in the Philippines before COVID-19 ranged from 71 years for males and 77 for females. This could be 1-4 years shorter based on international estimates… This results in forgone wages due to early deaths,” Mr. Chua said.
He said the health crisis may lead to lower productivity for the population as many people who recovered from COVID-19 still experience related health complications such as brain fog, weakness and respiratory damage, while some cannot still return to work in their full capacity due to the lack of treatment from other diseases.
The Philippines saw its steepest economic downturn in 2020, with gross domestic product contracting by 9.6%.
The economic team earlier slashed its growth target for 2021 to 4-5% from 6-7% amid strict lockdowns to curb a Delta-driven surge in COVID-19 cases.
Economists have warned of the possible “long-term economic scarring” for the Philippines if the crisis drags on. — Beatrice M. Laforga