Gov’t vows fiscal discipline as it widens programmed budget deficit for 2019

THE DEVELOPMENT Budget Coordination Committee (DBCC) on Monday reiterated the government’s commitment to fiscal discipline as it adjusted key economic assumptions for the proposed 2019 spending plan.

The DBCC widened the fiscal deficit ceiling, reduced its outlook on trade, as well as raised inflation and interest rate forecasts, while keeping the economic growth target and borrowing program steady.

The 2019 budget was set at P3.757 trillion, slightly less than the P3.767 trillion programmed this year, as it would be the first appropriation to be cash-based, whereby allocations can be disbursed only within the fiscal year, versus an obligation-based budget that allowed implementing agencies to disburse funds over two years.

It is also 8.3% more than the P3.469 trillion initially programmed in the previous meeting.

“We are optimistic that we will virtually eradicate underspending in fiscal year 2019,” said Budget Secretary Benjamin E. Diokno said in a media briefing yesterday.

The inter-agency body raised the revenue program for 2019 to P3.208 trillion from P3.203 trillion earlier programmed in the previous meeting in April, and 12.7% more than the P2.846 trillion targeted this year.

Disbursements for next year were likewise raised to P3.832 trillion from P3.782 trillion initially programmed and 13.7% more than the P3.37- trillion spending target in 2018.

This program results in a P624.37-billion fiscal deficit that is equivalent to 3.2% of gross domestic product (GDP), as well as 7.79% wider than the P579.23 billion initially programmed for 2019 and 19.23% bigger than the P523.68-billion deficit target this year — both equivalent to three percent of GDP.

“We certainly want to accelerate the Build, Build, Build program and also we are accelerating the investment in education and investment in social services including health,” Finance Secretary Carlos G. Dominguez III said.

“We assure our people that the government remains steadfast in its commitment to fiscal discipline. Improved revenue collections are channeled to productive spending that will clear the way to inclusive economic growth.”

The annual budget gap will return to three percent of GDP in 2020-2022.

“We think that with the revenues, and when you’re spending and accelerating it, the momentum will be there already. So I think we will make sure that the momentum is there,” said Mr. Dominguez.

The 2019 budget will be submitted to Congress on July 23, the day of President Rodrigo R. Duterte’s mid-term State of the Nation Address.

The DBCC also raised its inflation forecast to 4-4.5% this year from 2-4%, but retained the 2-4% forecast from 2019 to 2020.

The body also sees 2019 inflation piercing the central bank’s 2- 4% target even after the latter introduced back-to-back rate hikes in May and June. Mr. Diokno however said that the government expects inflation to “taper off in the second half of the year.”

It also adjusted upward the assumption for the 364-day Treasury bill rate to 3-4.5% for 2018-2022 from 2.5-4% previously.

The goods export growth assumption was cut to nine percent from 10% for 2018 but kept at nine percent from 2019 to 2022.

Goods import growth projection was similarly cut to 10% from 11% but kept at 10% for 2019-2022.

Asked whether the US trade row with China and its western allies has affected trade prospects for the Philippines, Socioeconomic Planning Secretary Ernesto M. Pernia said in the same briefing: “I think that it’s not going to hit the Philippines directly but it may dampen a bit global economic growth, which in that context would probably have an adverse effect in our exports.”

The DBCC also retained a 7-8% GDP growth target, a P50-53 per dollar foreign exchange assumption from 2018 to 2022, $55-70 per barrel Dubai oil price assumption for 2018 and $50-65 from 2019 to 2022, and a 65-35 borrowing mix in favor of domestic creditors for this year and the 75-25 ratio from 2019 to 2022. —