Economic managers keep growth targets

Despite identified risks to the domestic economy’s growth, the Duterte administration’s economic managers kept the government’s growth targets for the next five years, even revised upward exports growth projection in the next two years, but a slightly weaker peso.

During the Development Budget Coordination Committee’s (DBCC) meeting yesterday, the inter-agency body retained its gross domestic product (GDP) growth target at 7.0 percent to 8.0 percent beginning next year until 2022.

“We think we’re doing well that we didn’t find a need to change much of our assumptions until 2022,” said Budget Secretary Benjamin Diokno, who chaired the DBCC.

But the National Economic and Development Authority identified risks to the country’s growth, including increasing intensity and frequency of natural disasters, like seasonal typhoons, and dry-spells.

Restrictive employment protection legislation was also a risk to growth, along with possible delay in the implementation of infrastructure and reconstruction projects; peace and security.

External factors are also being considered including slower than expected growth in the US and United Kingdom.

NEDA also cited China’s financial sector risks and excessive credit growth; inward looking policies and extended period of policy uncertainty in major economies; and geopolitical tensions in Qatar and North Korea pose risks to economic expansion.

The economic team, however, retained its economic growth target at a range of 6.5 percent to 7.5 percent for this year, aligned with the country’s first nine-month actual expansion rate of 6.9 percent.

Meanwhile, the DBCC decided to slightly raise its peso-US dollar assumption to between 49 and 52 for next year until 2022 from the previous 48 to 51, while this year’s target was set at 50 to 51 from 48 to 50.

“This adjustment, however, should not be a cause of concern because as you know the impact of this in our fiscal, a peso depreciation is actually favorable to our fiscal position,” Diokno said.

Based on the Department of Finance’s sensitivity analysis, for every R1 depreciation of the peso against the US dollar, it will bring in R9.5 billion in additional tax revenues, but at the same time, requires the government to shell out extra R2.1 billion from its budget.

Along with the local currency, President Duterte’s economic team, likewise, adjusted its exports growth assumptions from five percent this year to 11 percent, next year from seven percent to nine percent, but kept the increase

at nine percent from 2019 to 2022.

Price assumptions for Dubai crude oil were also adjusted yesterday by the DBCC from $40 to $50 per barrel this year to $52 to $53, between $50 and $65 next year from $45 to $60, but maintained for 2019 to 2022 at $50 to $65.

Assumption for inflation was retained at 2.0 percent to 4.0 percent for 2018 to 2022, imports around 10 percent next year to 2019 and about 11 percent in 2020 to 2022.

The DBCC is mandated to recommend to the President the level of annual government expenditures and the proper allocation of state resources, subject to the prevailing economic and fiscal conditions.

For the medium-term fiscal targets, government revenue program for 2018 is pegged at R2.789 trillion.

The first package of the tax reform, which lowers personal income tax rates while raising excise taxes on numerous products, is projected to contribute a net amount of R82.3 billion next year.

“This could go higher given the vetoed provisions on the TRAIN law,” the DBCC said in a statement.

With respect to the budget deficit and the planned financing mix, the DBCC kept the 3.0 percent of GDP budget gap ceiling.

“The financing mix will also con- tinue to favor domestic borrowings. For 2018, there is a slight adjustment as the government is projected to borrow 74 percent from domestic sources, while 26 percent will be from foreign sources,” the DBCC said.

From 2019 to 2022, the government’s borrowing program is projected to follow an 80:20 mix in favor of domestic sources.

The national government debt ratio is also projected to continue its downward trajectory from 42 percent this year to 37.9 percent in 2022.

“The medium-term fiscal program is geared to support the development objectives of the Duterte Administration,” Diokno said. “We will ensure that all the revenues collected and monies disbursed will be for the benefit of our people.”