Spending Our Way Out of Crisis:

1. Spending Our Way Out of Crisis: Philippine Responses in Social Protection Cielito F. Habito Ateneo Center for Economic Research & Development Ateneo de Manila University Philippines

2. Overview • The Backdrop Persistent Philippine challenges • Impacts of Financial Crisis (1997-98 & Now) Human costs of crisis • Government Responses Fiscal Stimulus Package Social Protection Measures • Looking Ahead: Imperatives Meeting the MDGs and Beyond

3. Persistent ChallengesNon-inclusive Growth • Narrow:Growth propelled primarily by a few leading sectors and geographic areas • Shallow:Weak linkages to rest of economy – e.g., low domestic value-added exports • Hollow: Jobless growth; poverty-increasing growth

4. Top-Heavy Growth,Bottom-Heavy Needs • Poverty incidence rose from 30% in 2003 to 33% in 2006 • Real per capita income fell 10% nationally, and fell in 50 provinces between 2003 and 2006 (PHDR 2008/2009) • Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004 • Wide disparities in life expectancy across provinces: from low of 53.4 (Tawi-tawi) to high of 74.6 (La Union)

5. Increased poverty Higher unemployment Increased school drop-outs Increased hunger, malnutrition and sickness Asian Financial Crisis, 1997-98 Human Costs Reduced social investment • Budget cuts on social services • Public investments in HD • Higher cost/reduced private provision of social services

6. Damaged social capital Rise in Crime incidence Domestic violence Child abuse Street children Breakdown in community cohesion Asian Financial Crisis, 1997-98 Human Costs

7. Liquidity & budget support (for banks) Support for social safety nets Monetary easing Fiscal stimulus (vs. 1997 prescription!) Asia: “Growth rebalancing” International Response to the Current Global Crisis

8. Current Crisis Challenge: • Economic slowdown increased unemployment, worsened job quality • Poverty incidence worsened further; raises MDG financing gap • Measures for short-run stabilization could take a toll on human welfare and long-run sustainability(financial stability vs. sustainable human development: tradeoff or win-win?)

9. How Have Filipino Households Coped? (CBMS Survey 2009) • Financial: Borrowed money; saved money; used savings; pawned/sold assets; defaulted on loans • Education: Transferred child from private to public school; withdrew child from school; used 2nd hand books, uniforms • Health: Shift to alternative medicine; stop buying/reduce intake of medicine; shift to govt health centers/ hospitals; self medication

10. Philippine Economy: Dramatic Slowdown, But Spared from Recession GDP Growth Rate, Q1-04 to Q4-09 (%)

11. Where Are the New Jobs ?

12. Where Are The New Services Sector Jobs?

13. Domestic Economy (GDP):Government spends its way out of recession • Government consumption & cons-truction up 8.5% & 15.7% respectively • Consumption growth moderates as consumers pull back but… • Total investment spending dropped 10% even with brisk government construction • Exports fell dramatically (-15%)

14. Govt Spending Dominates GrowthAmid Declining Investment

15. Digression:The Multiplier Process Multiplier = 1/saving rate = 1/.2 = 5

16. The Multiplier Effect is stronger when: • Marginal saving rate is lower • Import content of the stimulated economic activities is lower (= domestic content higher)

17. Social Sector Spending:The Best Stimulus • Labor intensive • generates more jobs (broader benefits) • money circulates more among lower-income, lower-saving individuals • Lower import content than most other government projects • money stays in domestic economy • generates more tax revenues • Uplifts people’s lives

18. Habito 2009 (ADBI Study)*: • For every one percent of GDP spent on education and health, poverty elasticity of growth improves by 0.2 percent • RP social expenditures (as % of GDP) in 2000-2007 less than Malaysia, Singapore, Thailand, Sri Lanka & Nepal; higher than Bangladesh, Cambodia & Indonesia • Philippines had perverse experience of rising poverty (30%  33% from 2003-2006) at a time GDP reportedly grew the fastest in decades. “Patterns of Inclusive Growth in Developing Asia: Insights from an Enhanced Growth-Poverty Elasticity Analysis,” ADBI Working Paper.

19. Fiscal stimulus subject to fiscal sustainability (2009 saw record fiscal deficit of PhP300bn; return of ‘debt penalty’?) Need for emphasis on social & environmental expenditures, especially in light of “past sins” Philippine Balancing Act:

20. Govt Responses for Social Protection: Components • Fiscal Stimulus: Economic Resiliency Plan (ERP) • Conditional Cash Transfers: Pantawid Pamilyang Pilipino Program (CCT/4Ps) • Comprehensive Livelihood and Emergency Employment Program (CLEEP) • PhilHealth Indigent Program • DOH Hospital Assistance Program • Self-Employment Assistance-Kaunlaran • National Household Targeting System for Poverty Reduction (NHTS-PR)

21. RP Fiscal Stimulus PackageEconomic Resiliency Plan (PhP330B) • P160B for hiring more teachers, police-men, soldiers & doctors; repair/ rehab govt buildings; supplies and equipment e.g. patrol cars, ambulances; agriculture support • P100B for investments by SSS, GSIS in PPP infra projects • P30B in additional SSS, GSIS & PH benefits • P40B in income tax cuts

22. CCT/4PsBenefits & Budgetary Cost • Beneficiary household receives PhP500(USD11)/mo. for health & nutrition + PhP300(USD6.50)/mo. for education expenses for a maximum of 3 children • Eligible household with 3 children receives up to PhP1400(USD30)/mo. or PhP15,000(USD326)/year • Allotted PhP5 B(USD109M) in 2008 (321,000 beneficiaries); PhP10 B (USD218M) in 2009 (targeted beneficiaries >doubled to 700,000)

23. CCT/4PsGrant Conditions • Pregnant women must get pre/post-natal care; must be attended by professional at childbirth • Parents/guardians attend parenting classes • Children 0-5 yrs must receive regular preventive health checkups & vaccinations • Children 3-5 yrs must attend preschool at least 85% of the time • Children 6 -14 yrs must enroll in elementary/HS and attend at least 85% of the time • Children 6 -14 must avail of deworming pills every 5 months • Compliance monitored by the DSWD

24. CLEEPFeatures • Provides emergency employment, training & funding/supervising livelihood projects for the poor, returning expatriates, export industry workers, & out-of-school youth • Allotted PhP13.7 B(USD298M) in 2009 • Administered by National Anti-Poverty Commission (NAPC) • Participating Agencies: DA, DepEd, DENR, DFA, DOH

25. CLEEPContributed Programs • DA:Gulayan ng Masa, ISLA for Fisherfolks • DepEd: 1,500 OSYs as school utility workers; 12,300 OSYs trained for livelihood; Negosyong Pang-Eskuwela (school co-op enterprises) • DENR: 111,536 “green collar” workers for Upland Devt Pgm, Bantay Gubat; Jatropha planting, tricycle LPG retrofitting, etc. • DFA: FAME (Financial Assistance & Microfinance for Expatriates) – for laid-off OFWs • DOH: Botika ng Bayan, Nurses Assigned in Rural Service (NARS)

26. Health Assistance PhilHealth Indigent Program • Goal: Universal PhilHealth coverage • To cover 4.7 million indigent families • Government shoulders monthly contribution of qualified family beneficiaries • Budgetary cost: PhP1 billion DOH Hospital Assistance Program • PhP1.97B to upgrade manpower & facilities in government hospitals

27. National Household Targeting System (NHTS-PR)Features • Identify beneficiaries for social protection pgms; avoid past record of 62% leakage and 80% undercoverage of these programs • Nationwide targeting system costs PhP1.7B (PhP1B from DBM, PhP0.7B from PSF) • Implemented by DSWD, NSO, NSCB, and NEDA • Uses proxy-based measures to estimate household income and classify them as non-poor, poor, & food poor

28. Fiscal Implications • Total cost of package = PhP351.7B (USD7.64B), or about 23% of PhP1.5T 2009 budget (Note: Only PhP181.7B(USD3.95B) from national budget) • But only PhP38.4B (2.6%) for Social Protection • Social Services share of Total Expenditures up from 28% in 2008 to 30.6% in 2009, 31.1% in 2010 • Budget allocation for “Social Security, Welfare, and Employment” reportedly rose from 4.5 percent in 2007, to 5.7 percent in 2008, and further to 6.1 percent in 2009

29. MDG Resource Gaps (Manasan 2007)Impact of Slowdown • 2007-2010 Orig Scenario Low Growth • Educ - PhP166B  PhP190B • Health - PhP33.9B  PhP36.4B • WatSan - PhP1.35B  PhP1.5B • Poverty Red - PhP208.5B  PhP220B • TOTAL - PhP409.5B  PhP447.8B • 2010-2015 • Educ – PhP349B  PhP506.3 • Health – PhP83.6B  PhP94.8B • WatSan - PhP1.92B  PhP2.7B • Poverty Redn - PhP343.6 PhP417.8BB • TOTAL - PhP778B  PhP1.02T

30. What Needs To Be Done? • Boost levels of social sector spending • Improve tax administration • Negotiated debt relief • Encourage private sector funding: Tax credits for poverty-reducing CSR? • Raise quality of social sector spending • Do proper targeting (Apply NHTS-PR) • Invest in Communication & Behavior Change • Participatory budget allocation: e.g., widen membership in Local School Boards • Complement CCT on supply side • Limit NG to “steering”, let LGUs “row”

31. Maraming Salamat Po Thank You chabito@ateneo.edu