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Friday, March 29, 2024

DBCC sees PH economy contracting 3.4% this year

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The government expects the economy to contract between 2 percent and 3.4 percent this year, a sharp reversal of the actual 6-percent expansion in 2019 because of the debilitating impact of the COVID-19 pandemic.

It was a significant turnaround from the forecast of 6.5-percent to 7.5-percent growth that the government made before the onset of the COVID-19.

The interagency Development Budget Coordination Committee revisited the medium-term macroeconomic assumptions and fiscal program between 2020 and 2022.

“The DBCC projects the country’s gross domestic product to contract by 2.0 to 3.4 percent in 2020. NEDA [National Economic and Development Authority] estimates suggest that the potential impact of the pandemic on the economy could reach P2 trillion or about 9.4 percent of GDP this year,” the DBCC said.

“These adjustments reflect the Duterte administration’s priorities of saving lives and protecting communities, while providing support to vulnerable groups and stimulating the economy to create jobs and support growth,” it said. 

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“These revised assumptions will also allow the government to operate with a more realistic and prudent fiscal stance as it flags the downside risks to the economy and the fiscal program for the rest of the year,” it said.

The gross domestic product contracted by 0.2 percent in the first quarter, a turnaround from the 5.7- percent growth in the same period last year and 6.4 percent in the fourth quarter of 2019.

The DBCC expressed optimism the economy would rebound strongly in 2021.

“Timely implementation of a well-targeted recovery program, alongside efforts of the private sector, will mitigate the impact of the COVID-19 pandemic. Such a program will help the country regain confidence, attain higher economic growth, and restore employment rates to pre-crisis levels,” it said.

“The DBCC thus expects the country to recover by fiscal year 2021 with GDP growth of 7.1 to 8.1 percent,” it said.

It said that for 2020, the Bangko Sentral ng Pilipinas recommended the adoption of a lower price assumption for Dubai crude of $23 to $38 per barrel following substantive weakness in global oil consumption amid the COVID-19 crisis. 

The DBCC said that for 2021 to 2022, the price was expected to increase to a range of $35 to $50 per barrel.

The BSP also recommended a downward adjustment of 2020 growth assumptions for goods exports and imports to -4.0 percent and -5.5 percent, respectively. This is in anticipation of the global economy’s sharp contraction as a result of the COVID-19 pandemic. 

For 2021 to 2022, the growth in exports is expected to recover to 5 percent while growth in goods imports is projected to bounce back to 8 percent. 

The DBCC maintained the foreign exchange rate assumption of P50 to 54 against the US dollar for 2020 to 2022 and the inflation target at 2 percent to 4 percent.

The average inflation rate is now projected to range from 1.75 to 3.75 percent in 2020 because of subdued demand. 

Expected revenue collection was revised to P2.61 trillion or 13.6 percent of GDP in 2020, lower by P560.5 billion or 17.7 percent from the P3.17-trillion program approved by the DBCC on March 27, 2020. 

Disbursements for this year were estimated at P4.18 trillion, or equivalent to 21.7 percent of GDP. This slightly exceeded the program approved in March by P12 billion or 0.3 percent of GDP. 

“The emerging disbursement program takes into account the releases for COVID-19 initiatives charged to savings coming from austerity measures, among others,” the DBCC said.

It said that with the revised revenue and disbursement program, the deficit for 2020 is projected to reach P1.56 trillion or 8.1 percent of GDP. This is 2.8 percentage points higher than the estimate of 5.3 percent of GDP announced in March. 

The DBCC said the debt level would remain manageable, as the Philippines enjoyed its lowest-recorded debt-to-GDP ratio of 39.6 percent last year. 

It said the government’s deficit-to-GDP ratio would remain in the median of comparable countries in ASEAN and in East Asia, among peers with similar credit ratings, and among other emerging market economies, as long as the ratio does not exceed 9.0 percent. 

Below this threshold, the debt-to-GDP ratio will be around 50 percent, which is lower than the most recent peak of 71.6 percent in 2004.

The DBCC also adopted a revised 2021 cash budget of P4.18 trillion or 19.6 percent of GDP, which is nearly the same level as the P4.10 trillion cash budget this year. The revised 2021 cash budget is lower by around P460 billion compared to the earlier projection of P4.64 trillion in December 2019 following the reduction in revenue estimates for 2021.

The DBCC said the Philippines has strong economic fundamentals and sound fiscal health. At the same time, the DBCC reiterated its commitment to work with the whole of government in responding to challenges brought about by COVID-19 while helping drive a rapid economic recovery for the country.

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