THE interagency Development Budget Coordination Committee (DBCC) revised downward Philippine exports and imports growth target for 2018 to 2022, amid increasing concerns among the country’s major trading partners over the looming showdown between the United States and China.
The DBCC said on Monday that the expansion of exports this year will settle at 9 percent, while the increase in the import bill would reach 10 percent.
These are lower than the previous targets of 10 percent and 11 percent, respectively.
The committee revised its exports and imports targets after revenues from the outbound shipments of Philippine goods dropped for the fourth consecutive month this year.
Data from the Philippine Statistics Authority (PSA) showed that export receipts dropped by 4.01 percent in January, 5.54 percent in February, 6.77 percent in March and 8.46 percent in April. This resulted in a 6.21-percent year-on-year contraction in earnings from exports in the first four months of the year.
While the Philippine economy would not be directly affected by the escalating trade tension between the US and China, Socioeconomic Planning Secretary Ernesto M. Pernia said the country’s exports could take a hit.
“I think [the trade tension] isn’t going to hit the Philippines directly, although it may [affect] global economic growth, which could have an adverse effect on our exports,” Pernia told reporters in a news briefing in Manila.
The DBCC has also raised its inflation forecast for 2018 to 4 to 4.5 percent, from 2 percent to 4 percent, while its inflation forecast for 2019 to 2022 remained at 2 percent
to 4 percent.
“This is in recognition of what happened in the first half of the year; in the first five months,” Budget Secretary Benjamin E. Diokno said, noting that year-to-date inflation is at 4.1 percent.
Diokno noted that they expect inflation to taper off in the second half of the year. “That’s how confident BSP [Bangko Sentral ng Pilipinas] is,” he said.
The DBCC chairman also noted that they also expect oil prices to stabilize. The DBCC retained its assumption on Dubai crude oil price at $55 to 70 per barrel for 2018 while for the succeeding years up to 2022, the committee expects the price to hit $50 to 65 per barrel.
In response to the two interest rate hikes of BSP, Diokno said they have revised their outlook for 364- treasury bill rates at 3 percent to 4.5 percent in 2018 to 2022.
The peso to dollar exchange rate is also seen to remain at 50 to 53 in 2018 to 2022.
Revenue collection is also expected to reach P3.208 trillion in 2019, equivalent to 16.6 percent of GDP. This is also projected to rise to P4.588 trillion in 2022, or 17.7 percent of GDP, as tax policy reforms and improved tax administration will provide a much-needed boost to revenue effort in the medium term.
With the shift to the cash-based budgeting, national government disbursements are also expected to hit P3.833 trillion in 2019, equivalent to 19.8 percent of GDP and P5.362 trillion in 2022, or 20.7 percent of GDP.
“Government spending will continue to be a growth driver for the Philippine economy, especially as we invest in public infrastructure and human capital development,” Diokno said. “We are optimistic that we will virtually eradicate underspending in fiscal year 2019, as we transition to cash-based budgeting.”
The DBM chief said the proposed national budget of P3.757 trillion will be submitted to Congress during the President’s State of the Nation Address on July 23.
Although this is lower than the P3.8-trillion approved budget this year, he explained that the cash-based appropriation for 2019 is still up by 18.3 percent compared to the cash-based program in 2018.
To maintain the aggressive spending strategy to sustain the momentum of the “Build, Build, Build” (BBB) program, the DBCC has also raised its 2019 deficit ceiling to 3.2 percent of GDP, from 3 percent. This is equivalent to P624.3 billion in 2019 and is projected to reach P774.4 billion in 2022.
The medium-term financing program will continue to favor domestic borrowings, following a 65-35 mix in 2018, and a 75-25 mix from 2019 to 2022.
The debt-to-GDP ratio is also seen to decline from 42.8 percent in 2018 to 38.8 percent in 2022.
The government is also confident that the country’s GDP would expand by 7 percent to 8 percent in the medium term.
“We remain optimistic and maintain our economic growth target for the medium-term at 7 percent to 8 percent on the back of higher household consumption from job expansion, as well as increased infrastructure spending from the BBB program, and brighter prospects for the tourism sector,” Pernia said.
“Moreover, we also expect higher public and private investments through a reduction in the cost of doing business and reduced foreign investment restrictions,” he added.
The DBCC is one of seven interagency committees that make recommendations to the National Economic and Development Authority (Neda) Board that is chaired by the President.
The committee advises the President on the level of annual government expenditures and the ceiling of government spending for economic and social development, national defense and government debt service.
It also helps the Neda Board on the proper allocation of expenditures for each development activity between current operating expenditures and capital outlays, and sets the amounts to be allocated for capital outlays broken down into the various capital or infrastructure projects.
‘Decision inputs’
KNOWING the changes in the country’s macroeconomic assumptions is good for businesses and Filipinos in general, because it tells them where the economy is headed, according to local economists.
University of Asia and the Pacific School of Economics Dean Cid Terosa said changes in the government’s macroeconomic targets and assumptions can affect current and future
business decisions.
“Changes in targets are indications of how policy-makers view current and future market conditions,” Terosa said. “These changes are therefore decision inputs.”
Unionbank chief economist Ruben Carlo Asuncion added that with this, businesses can align their goals and activities alongside the government’s macroeconomic expectations.
For common Filipinos, knowing the macroeconomic targets also gives them firsthand information on the country’s economic prospects, which they can use to guide their financial decisions, Asuncion said.
“Keywords are transparency and expectations. Transparency, so that stakeholders are aware. Transparency helps manage expectations,” Asuncion said.
Emilio S. Neri Jr., lead economist of the Bank of the Philippine Islands, said knowing about the government’s economic targets can help businessmen and Filipinos in general understand how certain issues affect the economy.
Neri cited as example the impact of high oil prices on inflation—or the increase in commodity prices —and interest rates.
“It helps businessmen understand why government has to course-correct or make policy adjustments given how surprises or unanticipated external and internal economic developments have come into the picture,” Neri said.
With Cai U. Ordinario
