The economy is seen to contract by 5.5 percent for the full year, as projected by the Development Budget Coordination Committee (DBCC), which will then be the sharpest decline since the final years of the Marcos regime.
The DBCC, which reviews and approves the macroeconomic targets, has revised its 2020 gross domestic product (GDP) growth rate estimate from its earlier assumption of -2 to -3.4 percent.
The DBCC said the adjustments made are in view of updated indicators on the impact of the coronavirus pandemic on tourism, trade and remittances throughout the year.
Karl Kendrick Chua, acting socioeconomic planning secretary, said in a virtual briefing yesterday the latest projection also takes into account the ongoing implementation of the modified enhanced community quarantine (MECQ) in Metro Manila and several nearby provinces.
Dennis Mapa, Philippine Statistics Authority undersecretary and national statistician, said in a separate briefing that available data going back as far as 1946 show the economy only contracted four times on an annual basis.
“Based on our historical data, annually, the negative growth rates occurred in 1984, -7 percent; 1985, -6.9 percent; and then we have 1991, -0.4 percent; and then 1998, -0.5 percent,” Mapa said.
Nonetheless, the DBCC expressed confidence the country is on track to economic recovery next year, with GDP growth expected to reach 6.5 to 7.5 percent by 2021 to 2022, as the national government continues its pump-priming activities.
The DBCC said the priority implementation of the Build, Build, Build infrastructure program and revitalization of the industry and services sectors are expected to lead the recovery.
Macro assumptions
Meanwhile, the inflation rate assumption for 2020 was narrowed down to the range of 1.75 to 2.75 percent due to subdued demand. Inflation assumption for 2021 to 2022 was retained at 2 to 4 percent.
“This means that prices in the typical consumption basket of Filipino families will remain stable and predictable,” DBCC said in its statement.
The assumption for the price of Dubai crude oil per barrel for 2020 was revised from $23 to $38 per barrel to $35 to $45 per barrel, based on the futures market. For 2021 and 2022, the assumption has been maintained at $35 to $50 per barrel.
On the exchange rate, the range of the peso to US dollar exchange rate assumption was narrowed to P50 to P52 against the US dollar for 2020 and maintained at P50 to P54 from 2021 to 2022.
In view of the slowing down of global trade due to the coronavirus disease 2019 (COVID-19), the DBCC said the growth assumptions for goods exports and imports for 2020 further contracted by 16 percent and 18 percent, respectively.
However, the growth of goods exports is projected to pick up to 5 percent while growth of goods imports is expected to reach 8 percent by 2021 to 2022, consistent with the expected pace of recovery in global and domestic demand in the following years. Overseas Filipino remittances are projected to fall by 5 percent this year, but are expected to return to the normal annual growth rate of 4 percent in 2021 and 2022.
Medium-Term Fiscal Program
The DBCC’s estimated revenue collections for 2020 were reduced from the P2.61 trillion projection last May to P2.52 trillion, or 13.4 percent of GDP.
“The decline is a result of deeper contraction in real GDP growth and the P42 billion in estimated foregone revenues from the implementation of the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which will reduce the corporate income tax (CIT) rate to provide much-needed assistance to the business sector and help micro, small, and medium enterprises (MSMEs) retain their workers,” DBCC said.
On the other hand, estimated disbursements for this year inched up by P110 billion to P4.34 trillion, equivalent to 23 percent of GDP.
“The additional spending anticipates the P140 billion additional appropriations for the proposed Bayanihan to Recover as One (Bayanihan II) Act which is being pursued in Congress,” DBCC said.
For 2021, revenues are projected to slightly recover to reach P2.72 trillion, or 13.2 percent of GDP, while disbursements are expected to increase to P4.47 trillion, or 21.6 percent of GDP, consistent with the P4.506 trillion budget proposal.
Revenue and disbursement projections are estimated at P3.03 trillion, or 13.3 percent of GDP, and P4.68 trillion, or 20.5 percent of GDP, respectively, by 2022.
Given the revenue and disbursement plans approved by the DBCC, the deficit target over the medium-term is expected to increase from 8.4 percent to 9.6 percent of GDP in 2020, from 6.6 percent to 8.5 percent in 2021, and from 5.0 percent to 7.2 percent in 2022.
“Despite these adjustments in deficit spending, the DBCC is confident that the national government’s debt will be kept at a sustainable and responsible level, within the 60 percent internationally-recommended debt threshold, by 2022,” the statement read.
Carlos Dominguez, Department of Finance secretary, said in the same briefing the borrowing program for next year will still be roughly at 75 percent domestic and 25 percent international.
“For 2021, we expect to borrow roughly P3 trillion, roughly the same as what we borrowed in 2020. For 2022, the amount will go down to P2.3 trillion. Again, the financing mix will be roughly 75:25,” Dominguez said.
Stimulus
Dominguez reiterated that whatever stimulus package will be implemented amid the pandemic has to be affordable and must “recognize the fact that the COVID-19 may not be defeated by the end of this year.”
“We have to keep our powder dry for next year as well,” he said.
“We are prepared, as we have said in many, many ways, to spend a total of P180 billion in stimulus package this year. That stimulus package includes roughly P40 billion in tax credits for everybody. We want to lower the CIT by 5 percentage points and that would leave P40 billion in the hands of the private sector, more especially the MSMEs,” Dominguez said.
“Number two, we also are ready to spend additional P140 billion this year for that stimulus package, so the total package is actually P180 billion. Now this number is arrived at to keep our fiscal deficit in manageable zone,” he added.
Dominguez said for next year, he believes the tax revenues and the additional borrowings will be sufficient to support a P4.5 trillion budget.
Dominguez was also asked if the economic team pushed for another round of cash aid during the implementation of the MECQ, to which he said: “it was not anticipated and it’s not in the budget, so we believe that this two week (MECQ), we will check if we can put it in the Bayanihan law.”
Road to recovery
Dominguez said efforts to address the COVID-19 crisis have not been in vain, noting the country is “beginning to see the light at the end of the tunnel.”
He cited improvements seen in the manufacturing sector as the economy gradually reopens, as well as the further easing of the country’s total merchandise trade in its negative trajectory in June.
“These improvements are reflected in increases in tax collections by our main revenue-generating agencies. The Bureau of Customs was able to surpass its July collection target by 5 percent due to higher import volumes. This follows above-target performance in June, and signals rising economic activity,” Dominguez said.
“The Bureau of Internal Revenue, for its part, exceeded its July collection target by 2 percent. The major tax gains last month were seen in both excise and value-added taxes, signs that consumer spending is starting to pick up,” he added.
