COVID-19’s damage to the Philippines and Cebu economy

By: Fernando Fajardo - Columnist/CDN Digital | April 29,2020 - 07:28 AM

 

The size of the economy is usually measured by the size of its Gross Domestic Product (GDP). The GDP sums up the value of the country’s total output of final goods and services. It is also the same as the sum of the gross value added (GVA) contributed by all the productive sectors in the economy.

Last year the Philippine GDP was measured at P18.6 trillion at current prices or P9.75 trillion at constant 2000 prices.

The Philippine GDP is broken down only up to the regional level. The latest GDP report with regional break down is available only for the year 2018. Cebu is part of Region VII or the Central Visayas Region. In that year, the region’s gross regional domestic product (GRDP) was estimated at P1.157 trillion at current prices or P593 billion constant 2000 prices.

Assuming the regional economy grew as fast as the national economy in 2019, last year’s Central Visayas GRDP is estimated P1.229 trillion at current prices or P692.2 billion at constant 2000 prices.

In the absence of further breakdown of the GRDP by local government units, one way of determining the LGU’s respective contribution or share of the GRDP is to base it on their respective share of the total population of the region. However, this would assume that all the local government units have the same economic structure and labor productivity, which is not true.

To overcome this problem, we use the LGU’s percentage share of employment in agriculture, industry, and services out of the total employment in the region in the same sectors, then apply their percentage share of the total employment of the region by sector to the region’s GRDP by sector. 

Using the second method and the latest available data on gainful employment by sector by LGU, we will find that last year Cebu as a whole would have P873.6 billion in total value added or final goods and services produced at current price. At constant 2000 prices, it would be P450.9 billion.

With this information, we can now estimate the damage COVID-19 (coronavirus disease 2019) is causing to the national economy and that of the Central Visayas Region and Cebu, consisting of the province of Cebu and the three highly urbanized cities of Cebu, Lapu-Lapu, and Mandaue.

My estimate is that between 30 to 50 percent or 40 percent in average of the total gainfully employed workforce in the entire country is sidelined by the enhanced community quarantine (ECQ) that started in the middle of March. The ECQ will last up the end of April for some areas but extended up to the middle of May for much of the most productive areas in the country. 

The areas included in the last group are the National Capital Region, Central Luzon except Aurora, Calabarzon, Pangasinan, Benguet, Benguet, Baguio City, Iloilo Province, Cebu Province, Cebu City, and Davao City, with the first three areas alone together with Cebu Province, Cebu City, and Davao City already accounting for 70 percent of entire output of goods and services in the country.

Using the 2019 nominal GDP valued at P18.6 trillion, the entire country would have suffered a loss of about P1.25 trillion of the country’s nominal GDP at 40 percent of the gainfully employed being sidelined by COVID-19 for two months. In Central Visayas, the loss would by P82.3 billion and in Cebu, P58.5 billion.

Note that the GDP or GRDP is not the same as the total sales of all business establishments in the country or in the region. The GDP or GRDP is only a fraction of total sales of all the producing units in the country. How much is that fraction depends on how many percent of the firm’s total sales comprised of intermediate goods. 

When the value of the intermediate inputs is deducted from total sales, what remains is now the value added of the firm being contributed to the economy. Some firms may have very high value added ratio of up to 80 percent of sales but other have less at maybe 30 percent only. 

If you heard of the value added tax, it is really a tax imposed on the value added of the firm, which is at 12 percent presently. That is why it is called value added tax or VAT and not a sales tax. Now you know it./dbs

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TAGS: COVID-19, GDP, gross domestic product

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