Economy to contract deeper this year

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    The economy is projected to contract by 8.5 to 9.5 percent this year, based on the revised assumptions of the interagency Development Budget Coordination Committee (DBCC).

    The projections take into account recent developments in the country amid the coronavirus disease 2019 (COVID-19) pandemic.

    This was announced by Wendel Avisado, Department of Budget and Management (DBM) secretary, in a virtual briefing after the DBCC meeting held yesterday.

    The DBCC in July projected the economy to contract by 5.5 percent for the full year, or a contraction with a band of -4.5 percent to -6.6 percent.

    The average gross domestic product (GDP) growth rate for the first three quarters so far is -10 percent.

    “Despite a lower projection than what was initially adopted back in July 2020, further relaxation of restrictions, as we have improved our healthcare system capacity, will keep our economy on the right track towards full recovery,” Avisado said in a statement.

    “We are also expecting further improvement in our fourth quarter GDP numbers. As we carefully and proactively manage the risks, a strong economic recovery and solid growth remains within our reach. GDP growth is projected to bounce back to reach 6.5 to 7.5 percent in 2021 and eight to 10 percent in 2022,” he added.

    The DBCC also approved the following revisions to the macroeconomic assumptions and medium-term fiscal program based on the latest emerging data.

    The average inflation rate for this year is projected to range from 2.4 to 2.6 percent, revised from the previous assumption of 1.75 to 2.75 percent, while the inflation assumption for 2021 and 2022 is retained at 2.0 to 4.0 percent.

    Meanwhile, the assumption for the price of Dubai crude oil per barrel for 2020 was adjusted from $35 to $45 per barrel to $40 to $42 per barrel. For 2021 and 2022, it is maintained at $35 to $50 per barrel.

    The peso-to-dollar exchange rate assumption was revised to P48 to P50 against the US dollar for 2020, from the previous estimate of 50 to 52, and 48 to 53 against the US dollar from 2021 to 2022, also revised from the previous 50 to 54.

    Meanwhile, Avisado said in line with recent trends in global trade, the growth assumption for goods exports is maintained at -16 percent for 2020, while growth of goods imports for 2020 was further adjusted to -20 percent.

    “These are expected to pick up by 2021 and 2022 with the growth of goods exports maintained at five percent and growth of goods imports pegged at eight percent,” Avisado said.

    Service exports and imports growth assumptions in 2020 are expected to contract further by 21.4 percent and 19 percent, respectively.

    Avisado said these are assumed to rebound by 2021 with projected growth reaching six percent for service exports and seven percent for service imports.

    “This accounts for the gradual opening up of the domestic economy and increase in travel-related activities,” Avisado said.

    Meanwhile, the estimated revenue collections for this year have been increased from P2.52 trillion to P2.85 trillion, while revenue projections for 2021 and 2022 have also inched up to P2.88 trillion and P3.31 trillion, respectively.

    “The adjustments factor in the expected impact from the implementation of the Corporate Recovery and Tax Incentives Reform Act bill, as passed by the Senate,” Avisado said.

    Estimated disbursements for 2020 are expected to amount to P4.23 trillion.

    “The narrower gap in spending compared to that registered in September is primarily attributed to the implementation of Bayanihan II and the effort of government programs and projects to reach their targets despite the COVID-19 pandemic,” Avisado said.

    He added disbursements for infrastructure for the third quarter exceeded the program, and by yearend are expected to amount to P824.9 billion or 4.5 percent of GDP compared to the 4.2 percent forecasted in July.

    Total disbursement program is pegged at P4.66 trillion for 2021 and P4.95 trillion for 2022,” he added.

    Given the revised revenue and disbursement program, the deficit program for 2020 is narrowed down from 9.6 percent of GDP to 7.6 percent of GDP in 2020. This is adjusted to an estimated 8.9 percent of GDP in 2021 and 7.3 percent of GDP in 2022.

    “Our deficit program is designed to balance the requirement of supporting economic recovery while keeping our debt-to-GDP ratio beneath a sustainable threshold,” Avisado said.

    Meanwhile, Avisado said the proposed cash budget for 2022 is pegged at P5.024 trillion.

    This is higher by 11.5 percent than the 2021 national expenditure program and is equivalent to 22.2 percent of GDP.

    “The proposed 2022 national budget will continue to prioritize funding for health-related responses and measures that will help accelerate economic growth,” Avisado said.

    Avisado said developments that were considered during the DBCC meeting include the economy’s gradual recovery, the better-than-expected performance of the main revenue collection agencies, improvements in the employment situation compared to the peak of community quarantine restrictions, and the likely passage of key economic recovery bills.