Recto sees ‘realistic’ 6-6.5% growth for Phl
Finance Secretary Ralph Recto is looking at a “more realistic” economic growth of at least six to 6.5 percent for this year, with medium-term economic expansion likely to be tempered as well.
On the sidelines of the Economic Journalists Association of the Philippines induction of officers on Thursday, Recto said there is a need to come out with more realistic targets not only for this year but for the medium term as well.
“If we project a very high GDP (gross domestic product), you’ll also project a very high revenue and if you miss it, your deficit will increase and your debt-to-GDP will also increase,” Recto told reporters.
The finance chief is now looking at six to 6.5 percent GDP expansion for 2024.
This is significantly lower than the 6.5 to 7.5 percent GDP target set by the Cabinet-level Development Budget Coordination Committee (DBCC) in December last year.
“I think six percent is a good number. Aspirational, I think we should hit for 6.5 percent. Realistic is six (percent), but we will endeavor to hit 6.5. That’s how I’m looking at it,” Recto said.
“Nevertheless, we are pushing the BIR (Bureau of Internal Revenue), the Customs and the Treasury to collect more. We will adjust the GDP downward, but we will ask the BIR and the BOC (Bureau of Customs) to do more,” he said.
The DBCC held its meeting yesterday, but Budget Secretary and DBCC chair Amenah Pangandaman said no statement would be released yet.
The DBCC also held off its usual media briefing after the meeting.
Recto clarified that his six to 6.5 percent GDP target is solely the stand of the Department of Finance and will be subject to discussion with the other members of the DBCC.
The finance chief argued that the 7.5 percent GDP aspiration is “too high.”
“We hit 5.6 percent last year, the highest in the region. But what’s the headline? Philippines fails to hit the target. I would rather have a headline that says the Philippines hits the highest in the region at six or 6.5 percent and also hits its target,” Recto said.
He added that the DBCC would also evaluate and make adjustments on the goals under the medium-term fiscal framework (MTFF), which was crafted during the start of the Marcos administration.
Recto said he wants the MTFF to also be “more realistic, tempered, but still aspirational.”
Under the MTFF, GDP growth for 2025 until 2028 should be at 6.5 to eight percent.
Recto emphasized that the rest of the parameters in the MTFF are also being looked at including revenues and expenditures.
“That is also up for review. I guess all of the President’s hard work and that of the previous economic managers will probably bear fruit next year when we expect more foreign direct investments to come in,” he said.
“By then, we can probably adjust those figures again upwards. We still have two hot wars ongoing, geopolitical tensions in this part of the world, but then there’s so much opportunities and optimism in the Philippines,” he said.
Initiated by former finance
The Monetary Board has kept interest rates on hold after a 25-basis-point, off-cycle hike in October 2023. The central bank has tightened borrowing costs by 450 basis points between May 2022 and October 2023, bringing the key rate to a near 17-year high of 6.50 percent.
Security Bank chief economist Robert Dan Roces said inflation may likely breach the two to four percent target in the second quarter, as earlier telegraphed by the BSP, due to upward pressures such as rising energy prices, supply chain issues and possible wageprice spirals.
“The Monetary Board will dissect the data in April, considering underlying trends and external pressures. Public inflation expectations and the need to balance price stability with economic growth will also be on their radar,” Roces said in a Viber message.
The second monetary policy setting of the BSP Monetary Board for this year has been moved to April 8 from April 4.
ING Bank Manila senior economist Nicholas Mapa also believes inflation could be higher in March.
“March could still likely see high inflation for important items such as rice while transport related prices and electricity could also contribute to inflation close to the upper bound of BSP’s inflation target,” he said.
On the sidelines of the Economic Journalists Association of the Philippines induction of officers on Thursday, Recto maintained that he is expecting a bumpy road ahead for inflation.
Recto shares Remolona’s expectation that the headline rate may have jumped to 3.9 percent in March, closing in to the upper end of the target band.
The DOF chief also did not discount the likelihood of inflation breaching four percent in the coming months.
“There’s always that possibility but for the year, it will still be within the two to four percent. It’s going to be a bumpy road. It may breach [four percent] but it will still go back to target,” Recto told reporters.
Nonetheless, the Finance chief expects interest rates will be higher for longer as inflation remains elevated.
“Remember that you still have disruptions in the supply chain because of geopolitical tensions. There’s reshoring, onshoring, refiguring out the supply chains globally so inflation will be higher for longer,” Recto said.
As such, Recto emphasized that a rate cut can still be expected but probably less than what was initially projected.
He said two adjustments could be penciled in for 25 basis points each as the market is initially expecting up to four rate cuts this year for a total of 100 basis points.
“Both less in magnitude and frequency,” Recto said.