by Diego Gabriel C. Robles
President Ferdinand Marcos Jr.’s economic team remains optimistic that growth momentum will be sustained this year, despite rising inflation and a darkening global economic outlook.
After a meeting on Friday, the Development Budget Coordination Committee (DBCC) said in a statement that it adjusted macroeconomic assumptions, fiscal program and growth targets for 2022 to 2028 “to take into account the [Marcos] administration’s priorities and fiscal strategy, latest domestic developments, and external pressures.”
Affirming Finance Secretary Benjamin E. Diokno’s statement last Wednesday, the DBCC now expects gross domestic product (GDP) to expand by 6.5-7.5 % this year, slightly lower than the 7-8% projection given by the previous administration.
“The increase in household consumption and private investments, along with a robust manufacturing industry, high vaccination rate, improved healthcare capacity, and the upward trend on tourism and employment have allowed us to safely re-open the economy and register a positive growth for the first three months of 2022. This momentum is expected to continue for the rest of the year,” the DBCC said in a statement.
Mr. Diokno said he expects the second quarter GDP growth to be even higher than the first quarter. The economy grew by a better-than-expected 8.3% in the first three months of 2022, despite an Omicron-driven surge in coronavirus infections in January.
The DBCC also expects the economy to grow by 6.5-8% annually from 2023 to 2028, higher than the previous administration’s assumption of 6-7% from 2023 to 2025.
In a press conference on Friday, Socioeconomic Planning Secretary Arsenio M. Balisacan said the growth projections for the next five years are based on expectations of global economic recovery and a drop in global oil prices.
Based on the DBCC assumptions, Dubai crude will average $90-$110 per barrel this year, $80-100 per barrel in 2023, and $70-90 per barrel from 2024 to 2028.
“We’re also addressing constraints to growth in the Philippines… There is so much potential out there if you address constraints to growth,” Mr. Balisacan said, citing plans to reduce logistics costs, enhance food security and address the energy problems.
Mr. Diokno said the Marcos administration’s focus on agriculture and mining will also help drive growth.
“Agriculture was a laggard. Now we’re focusing on agriculture so we expect it to grow around 2-3%,” he added.
Asked how a possible recession in China and the United States would affect the economy’s outlook, Mr. Balisacan said this may have a positive impact since it will lower the global demand for oil, which would be good for a net importing country like the Philippines.
“The negative implication is demand for our exports would be less, but on the other hand we have other sources of growth — domestic consumption including investment represents a huge chunk of GDP,” he said.
ELEVATED INFLATION
The average inflation rate assumption was raised to 4.5-5.5 % for 2022, from 3.7-4.7% previously, reflecting the impact of soaring transport, fuel, and food expenses.
Nonetheless, the DBCC is expecting inflation to ease to 2.5- 4.5 % in 2023, from 2-4%, previously. Inflation is likely to return to the 2-4% target range starting 2024 to 2028.
The Philippine peso-US dollar exchange rate assumption is still at P51-P53 in 2022, but will move to P51-P55 from 2023 to 2028.
This is due to “heightened global uncertainty such as the aggressive monetary policy tightening by the US Fed, market aversion amid Russia-Ukraine conflict, and increased global oil prices,” the DBCC said.
The peso closed at P55.92 versus the dollar on Friday, data from the Bankers Association of the Philippines showed.
The DBCC also retained this year’s export growth target to 7%, but increased import growth goal to 18% from 15% previously.
The export growth target was kept at 6% for 2023 to 2025, even expanding it until 2028. Likewise, imports are still expected to expand by 6% in 2023 and by 8% in 2024 to 2028.
FISCAL PROGRAM
The DBCC retained its revenue targets at P3.304 trillion, P3.633 trillion, and P4.063 trillion for 2022, 2023, and 2024 respectively.
Meanwhile, the revenue target for 2025 was raised to P4.577 trillion from P4.549 trillion in May.
Additionally, revenue targets of P5.155 trillion, P5.281 trillion, and P6.589 trillion were introduced for 2026 to 2028.
The expenditure program was also retained at P4.955 trillion for 2022 and P5.086 trillion for 2023 (both above 20% of GDP). On the other hand, disbursements are seen to increase to P5.402 trillion in 2024 from the P5.392 projection given in May. Likewise, the 2025 disbursement also increased to P5.759 trillion from P5.723 trillion, previously.
From 2026 to 2028, the expenditure program is projected to be at P6.250 trillion, P6.916 trillion, and P7.712 trillion for 2026, 2027, and 2028 respectively.
The DBCC maintained its target budget deficit for 2022 at 7.6% of GDP.
“Given the revised revenue and disbursement program, the deficit will be gradually reduced by at least 1.0 percent every year starting at 6.1 percent of GDP in 2023 to 3.0 percent of GDP in 2028 to ensure debt sustainability over the medium-term,” the DBCC said, adding it will be achieved through spending efficiency and alignment of budget priorities.
Also, Mr. Diokno said that the new administration will be opportunistic in its borrowing plans.
“The financing mix, if I remember right, is 75-25 [right now] and for the longer term we will try to increase this to 80-20. We will borrow domestically, 80%, and 20% from foreign sources,” Mr. Diokno said.
“We are doing this in order to reduce our foreign exchange risk. The way we borrow is that we try to be opportunistic. There are many sources of borrowing in terms of foreign debt, so we will choose the lowest cost as far as we’re concerned and the one that will offer the best terms. For example, it’s 40 years to pay, we would tend to borrow from those sources.”
DEBT-TO-GDP
Even as the Marcos administration plans to increase spending to boost growth, it will continue consolidating its debt, targeting to bring down the debt-to-GDP ratio that ballooned during the pandemic.
The country’s debt-to-GDP ratio stood at 63.5% as of the end of the first quarter, which surpasses the 60% threshold considered as manageable by multilateral lenders for developing economies.
By end-2022, the goal is to bring it down to 61.8%, Mr. Diokno said. The debt-to-GDP ratio is expected to steadily drop to 61.3% by next year all the way to 52.5% by 2028.
“This kind of debt structure is nothing to worry about. This is one of the lowest among emerging markets… The way out of this is by growing at a faster rate, we simply outgrow our debt,” Mr. Diokno said.
Mr. Diokno said it is not “crucial” to return to the 39.6% debt-to-GDP ratio seen as of end-2019.
“We have to prioritize growth first rather than going back to that number,” he said.
