DBCC scales down GDP growth target to 6-6.5%

THE interagency Development Budget Coordination Committee (DBCC) has accepted that the country would not hit the higher end of the government’s growth target of 7 percent this year as it decided to scale it down to a tighter range of 6 to 6.5 percent.

While the government decided to maintain its growth target for next year at 6.5 to 7.5 percent, it also cut its growth goals for 2021 and 2022 to 6.5 to 7.5 percent from its original growth target of 7 to 8 percent.

The National Economic and Development Authority (Neda) said GDP growth target for this year was revised downward since the 6-percent to 7-percent original target band is “no longer credible” given the GDP growth numbers in the last three quarters.

The DBCC decision to revise its growth expectations downward is consistent with Asian Development Bank (ADB) expectations for this year. See related story on page A2.

Year-to-date economic growth is 5.8 percent after two quarters of deceleration and a surge in the growth of Philippine economy in the third quarter at 6.2 percent.

“For the year, we are actually proposing a tighter band because we really have the Q1, Q3 numbers but we still think that we are at the range of 6 to 6.5 percent. I think, you know, if we say it’s 6 to 7 [percent] then it’s no longer credible, given that we already have the first three quarters,” Neda Undersecretary for Policy and Planning Rosemarie G. Edillon told reporters following the 177th DBCC meeting.

As for the revision of the GDP growth goals for 2021 and 2022, Edillon explained the move is “consistent with fiscal prudence.”

She added: “Moving forward, we want to stick to prudent fiscal management and so looking also at the different tax-reform programs that are there, the revenue projections and then we want to maintain a fiscal deficit to GDP ratio of 3.2 percent and also we want to make sure that the debt does not balloon…” she said.

Exports cut, too

ASIDE from GDP growth projections, the DBCC also slashed its growth assumptions for merchandise exports and imports for 2019.

Due to ongoing trade tensions, the government is now seeing a lower merchandise exports growth this year at 1 percent, compared to its previous assumption of 2 percent. It also cut its merchandise exports growth projection for next year to 4 percent from 6 percent, while retaining a 6-percent hike for the country’s exports bill for 2020 to 2022.

“The assumption for goods export growth is revised downward in the short term to 1.0 percent for 2019 and 4.0 percent in 2020 due to continuing unresolved trade tensions. However, the assumptions for 2021 and 2022 are retained at 6.0 percent as global economic activity is expected to recover in the medium-term,”said DBCC Chairman and Acting Budget Secretary Wendel E. Avisado.

The DBCC also made a drastic reduction for its merchandise imports assumption for the year, revising it to 2 percent—far from the original 7 percent. It maintained its forecast of 8 percent for 2020 to 2022.

Edillon attributed the move to the slowdown in the importation of capital equipment due to the impact of the budget reenactment early this year, as well as the end of re-fleeting programs by airline companies and transport companies. On services, the government also downgraded its imports growth assumption for this year to 2 percent from the previous 3 percent. It retained its growth forecasts of 4 percent for 2020, and 5 percent for 2021 and 2022.

Services exports growth assumption for 2019 to 2022 were also maintained at 9 percent.

Inflation

THE average inflation rate for 2019 is also projected to settle at 2.4 percent from the previous 2.7 percent to 3.5 percent. Meanwhile, the assumed average rates for 2020 to 2022 are expected to remain between 2 percent to 4 percent.

The DBCC also narrowed its 2019 forecast for Dubai crude oil to the range of $63 to $64 per barrel, from $60 to $75 previously. For the medium-term it also adjusted downwards its projection to $55 to $70 per barrel, from $60 to $75 for 2020 to 2022.

Moreover, the foreign-exchange rate assumption for 2019 was also narrowed to P51 to P52 against the United States dollar, from the previous P51 to 53. For 2020 to 2022, the forex assumption was calibrated to P51 to P54 from the earlier forecast of P51 to P55.

Likewise, the assumptions for the 364day Treasury bill rate and the six-month London Inter-Bank Offered Rate have been adjusted downward. The average T-bill rate will range from 5.1 percent to 5.3 percent in 2019 and 3.5 percent to 4.5 percent in 2020 until 2022. On the other hand, the six-month Libor will range from 2.3 percent to 2.4 percent in 2019, and from 1.5 percent to 2.5 percent from 2020 to 2022.

Fiscal program

In terms of the government’s medium-term fiscal program, revenue collections are still projected to reach P3.15 trillion in 2019, equivalent to 16.8 percent of gross domestic product. Meanwhile, disbursements are targeted to hit P3.76 trillion in 2019, which is equivalent to 20.0 percent of GDP.

For 2020, revenues are projected to increase to P3.49 trillion, or 16.6 percent of GDP, while disbursements are programmed at P4.16 trillion or 19.8 percent of GDP.

By 2022, revenue and disbursement projections are estimated to rise to P4.31 trillion (17.0 percent of GDP) and P5.12 trillion (20.2 percent of GDP), respectively.

“The Comprehensive Tax Reform Program can help ensure a reliable revenue base and, more important, enhance the modernization of our economy. Quickly completing the passage of the remaining tranches of the tax reform will ensure a steady revenue flow and equitable sharing for the government’s social and infrastructure programs, while securing fiscal stability long into the future,” Avisado said.

Given the revenue and disbursement program adopted by the DBCC, the deficit target will be maintained at 3.2 percent of GDP from 2019 to 2022 to sustain the government’s investments in infrastructure and human capital development.