Ruling party tensions could distract focus from economic recovery

THE internal conflict among members of ruling political party may derail the Duterte administration’s policy making and reforms in its remaining months, Fitch Solutions Country Risk and Industry Research said.

“There is a risk that policy-making processes will slow as attention is turned to political jostling rather than measures to speed up the Philippines’ economic recovery from the coronavirus disease 2019 (COVID-19) pandemic and longer-term reforms,” Fitch Solutions said in a note on Monday.

The think tank raised concern over the infighting within the Partido Demokratiko Pilipino – Lakas ng Bayan (PDP-Laban), as the ruling party prepares to field candidates for the presidential elections in May.

The two camps led by President Rodrigo R. Duterte and Senator Emmanuel “Manny” D. Pacquiao, Sr. are now preoccupied with gaining control of the political party, even as the country battles a Delta-driven surge in COVID-19 infections.

“The PDP-Laban infighting and potential switching of allegiances in the coming months could disrupt policy making at a time when the Philippine economy remains hampered by COVID-19. The confusion over the easing of containment measures in Metro Manila on Sept. 8, highlights the uncertainty facing the economy in the near term,” Fitch Solutions said.

This prompted Fitch Solutions to lower the country’s Short-Term Political Risk Index (STPRI) score to 64 from 64.9 out of 100 to reflect the higher near-term risks of political instability and its impact on policies.

“Indeed, signs of significant disruptions to policy making, such as delays to the passing of the 2022 budget, could prompt us to revise our score even lower,” it said.

Fitch Solutions noted these “political distractions” may affect efforts to support economic recovery.

“Focus will likely shift away from the need to boost the Philippines’ vaccine uptake rates and address supply issues,” it added, referring to the sluggish vaccine rollout.

The Philippines has only vaccinated less than 15% of its population, lagging behind its Southeast Asian neighbors and was only better than Vietnam’s 4.91%.

The Health department on Monday reported 20,745 new COVID-19 cases, bringing the active caseload to 180,293.

“Longer-term reforms that would benefit the next president could also stall. These include proposed reforms to ease restrictions on foreign ownership in the utilities and retail sectors, as well domestic hiring requirements, which could be key to reinvigorating investor interest in the Philippines,” it said.

Fitch Solutions also noted the squabbling among PDP-Laban members has also raised the prospects for opposition candidates winning the presidency in next year’s election.

‘LIMITED SUPPORT’
Meanwhile, Nomura Global Markets Research said the Philippine economy could face a sluggish rebound this year as fiscal support remained limited amid the new virus surge.

Nomura lowered its 2021 growth forecast for the Philippines to 4.8% from the 5.4% it previously gave. This falls within the downgraded 4-5% full-year target set by the government.

It also maintained its growth forecast of 8.7% for the Philippines in 2022, also within the 7-9% government target.

“Vaccinations have picked up, but new COVID-19 cases are rising more sharply, threatening the economic recovery amid still-limited signs of large fiscal stimulus,” Nomura Chief ASEAN economist Euben Paracuelles and analyst Rangga Cipta said in a monthly economic note on Monday.

Nomura expects the Philippines will fully vaccinate up to 45-55% of its population by end-2021, based on the 451,200 average number of doses administered per day as of end-August. This is still below the government’s target to have 70% of the population vaccinated against COVID-19 by end-2021.

“If the pace of vaccination does not pick up (i.e., the August pace is maintained), Indonesia, the Philippines and Thailand would only reach 80% full vaccination coverage by Q3 2022,” it added.

Nomura also warned that the government’s plan to implement granular lockdowns may be a “risky approach” given cases remain high.

Despite the need for support amid the new wave of infections, Nomura believes fiscal measures are likely to remain limited “given the government’s continued aversion to higher debt ratios.”

“We also think the reforms in the pipeline will be difficult to pass in the congress, as political noise will likely continue to pick up, ahead of next year’s presidential elections in May,” the report said. — Luz Wendy T. Noble