The government has given up on its goal to expand the economy by as much as 8 percent in the medium-term due to rising uncertainties, including the US-Sino trade tensions.
The interagency Development Budget Coordination Committee (DBCC) has revised some of its macroeconomic assumptions, taking into consideration both external and domestic developments, while it also tightened the gross domestic product (GDP) growth rate forecast for 2019 as the year comes to a close.
The government said on Wednesday it cut its growth goals for 2021 and 2022 to 6.5 percent-7.5 percent from previous forecast of 7.0 percent-8.0 percent, but kept the 2020 target at 6.5 percent-7.5 percent.
The government also trimmed this year’s growth target to 6.0 percent-6.5 percent from 6.0 percent-7.0 percent, to reflect weak economic activity in the first-half due to the delay in the budget approval, which slowed government spending.
“We are going to be affected adversely by the trade war which will affect global growth,” Economic Planning Secretary Ernesto Pernia told Reuters. “It is not only the Philippines that is down scaling the targets.”
In a press conference yesterday, Wendel Avisado, Department of Budget and Management (DBM) secretary, said the DBCC had its 177th DBCC meeting to revisit the macroeconomic assumptions and medium-term fiscal and growth targets of the government.
“The GDP growth target is projected at six to 6.5 percent in 2019 and 6.5 to 7.5 percent in 2020 to 2022,” Avisado said at the briefing held at the Department of Finance (DOF) building in Manila.
The economic growth forecast for the year was narrowed from the previous projection of six to seven percent.
The DBCC kept the growth projection for 2020, while lowering forecasts for 2021 and 2022 from the previous seven to eight percent.
“For the year we’re actually proposing a tighter band because we already have the first to third quarter numbers… because if we say it’s six to seven percent then it’s no longer credible given that we already have the first three quarters,” said Rosemarie Edillion, National Economic and Development Authority (NEDA) undersecretary. “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, then we want to maintain a fiscal deficit-to-GDP ratio of 3.2 percent, and also we want to make sure that (it) does not balloon, this growth is consistent with the fiscal prudence,” she added.
The DBCC also projects that the average inflation rate for 2019 is projected to settle at 2.4 percent, revised from 2.7 to 3.5 percent, which Avisado said indicates relatively stable prices for Filipino consumers.
The assumed average rates for 2020 to 2022 will remain between two to four percent throughout.
The assumption for the USD price of Dubai crude oil per barrel has also been adjusted downwards in the medium-term.
For 2019, the projected range has been narrowed to the range of $63 to 64 per barrel, from the previous outlook of $60 to $75.
From 2020 to 2022, the price range is projected to average between $55 to $70 per barrel, revised from the previous $60 to $75.
Avisado also said that the PhP-USD exchange rate assumption is revised downward to the range of P51 to P52 for 2019, from the earlier projection of P51 to P53. For 2020 to 2022, it was also revised to P51 to P54 from P51 to P55 billion during the July DBCC.
Likewise, the assumptions for the 364-day Treasury bill rate and the 6-month London Interbank Offered Rate (LIBOR) have been adjusted downward.
The average T-bill rate will range from 5.1 to 5.3 percent in 2019 and 3.5 to 4.5 percent in 2020 until 2022.
On the other hand, the 6-month LIBOR will range from 2.3 to 2.4 percent in 2019, and from 1.5 to 2.5 percent from 2020 to 2022.
The assumption for goods export growth is also revised downward in the short term to one percent for 2019 and four percent in 2020, from the previous projections of two and six percent, respectively, which Avisado said is due to continuing unresolved trade tensions.
However, the assumptions for 2021 and 2022 are retained at six percent as global economic activity is expected to recover in the medium-term, Avisado said.
The projected good imports growth was likewise revised to two percent this year from the previous outlook of seven percent, while the figures for the rest of the succeeding years were maintained.
“For goods imports, the growth for 2019 was actually adjusted to two percent but maintained at eight percent for 2020-2022. This is supported by the robust domestic growth outlook so it was has already been adjusted accordingly,” Edillon said.
“The borrowing program will be basically consistent with what we need and quite conservative. Again we’re going to maintain our debt-to-GDP ratio at 42 percent or below.
(The mix will) roughly be 70-30 but you know we have to adjust as we go along through the year. There are many possibilities, what will happen internationally and also domestically,” Carlos Dominguez, DOF secretary, said in the same event.
“You have to remember that since this administration took over, we have pumped to the economy by reducing the reserve requirements. We’ve pumped P600 billion already so that is a big pressure to reduce interest rates. Our ODA (official development assistance) program is in place and we’re not making any changes to that,” he added.
Meanwhile, Avisado said that revenue collections are projected to reach P3.15 trillion in 2019, equivalent to 16.8 percent of GDP, while disbursements are targeted to hit P3.76 trillion in 2019, which is equivalent to 20 percent of GDP.
For 2020, revenues are projected to increase to P3.49 trillion, equivalent to 16.6 percent of GDP, while disbursements are programmed at P4.16 trillion or 19.8 percent of GDP.
Revenue and disbursement projections are estimated to rise to P4.31 trillion (17 percent of GDP) and P5.12 trillion (20.2 percent of GDP), respectively, by 2022.
“Consistent with the macroeconomic assumptions and foregoing fiscal targets, the fiscal year (FY) 2021 cash budget is pegged at P4.64 trillion,” Avisado said.
The proposed figure for 2021 is 13.3 percent higher than the P4.1 trillion cash budget for 2020 and is equivalent to 20.2 percent of GDP.
Meanwhile, Avisado said that the economic managers will still have to look at the enrolled bill on the proposed 2020 budget before making further comments on it.
“Much of it really has gone through the tedious process of both houses, reviewing them and then agreeing that this is going to be the final outcome of their efforts. We will reserve our observation on that enrolled bill once we get a copy of it,” Avisado said.
“In terms of the timetable, we’re glad that they finally approved it and ratified it because it will then also fast track the signing of the 2020 budget by the President that is within the month,” he added.
“Certainly, much improved, much improvement over last year so we’re quite pleased that we will start the year with a honest to goodness 2020 budget rather than what happened last year,” Dominguez said. (With Reuters)
