DBCC revises macroeconomic assumptions for 2020 after double-digit GDP contraction in Q2

August 6, 2020

The inter-agency Development Budget Coordination Committee has further trimmed down its macroeconomic assumptions, including the Philippine economic growth, for this year after the second quarter gross domestic product posted a record double-digit contraction.

In the DBCC virtual press conference on Thursday, Budget Secretary Wendel Avisado said the body adjusted its medium-term macroeconomic assumptions, fiscal programs, and growth targets as basis for the proposed P4.506 trillion budget for next year to be submitted to Congress before August 26 for its enactment.

"For 2020, the DBCC’s projection of the country’s gross domestic product (GDP) growth rate has been adjusted from the previous estimate of -2.0 to -3.4 percent to -5.5 percent in view of updated indicators on the impact of the COVID-19 pandemic on tourism, trade, and remittances throughout the year," he said.

Avisado, as well as the other members of the economic team, expressed optimism that the economy will recover next year, with GDP growth to hit 6.5 to 7.5 percent by 2021 to 2022, lower than the May projections of 8.0 to 9.0 percent in 2021 and 6.0 to 7.0 percent in 2022.

The country's GDP for the second quarter declined by 16.5 percent, bringing the average growth rate for the first semester to -9.0 percent.

"The priority implementation of the Build, Build, Build infrastructure program and revitalization of the industry and services sectors are expected to lead the recovery," Avisado said.

The DBCC also updated its other macroeconomic assumptions.

For inflation rate, the range was narrowed down to 1.75 to 2.75 percent from 1.75 to 3.75 percent last May due to "subdued demand," Avisado said.

Most parts of the country had been placed under enhanced community quarantine, which required closure of the 75 percent of the economy  from mid-March to June to contain the spread of coronavirus disease.

Inflation assumption for 2021 to 2022 was retained at 2.0 to 4.0 percent.

The price of Dubai crude oil per barrel for this year was increased from US$ 23 to 38 per barrel in May to US$35 to 45 per barrel while for the two succeeding years, the assumption has been maintained at US$35 to 50 per barrel.

From P50 to P54 to the US dollar, the exchange rate was narrowed to P50 to P52 against the US dollar for this year and remained at P50 to P54 from 2021 to 2022.

For goods exports and imports, the DBCC's assumptions were further slashed from -4.0 percent and -5.5 percent, respectively in May to -16.0 percent and -18.0 percent, respectively.

But the growth of export goods is seen to pick up to 5.0 percent while growth of import goods could reach 8.0 percent by 2021 and 2022.

Remittances from overseas Filipino workers are projected to drop by 5.0 percent this year as over 100,000 OFWs have been displaced by the pandemic and returned to the country.

However, the DBCC said it expects remittances from OFWs to return to normal annual growth rate of 4 percent in 2021 and 2022.

The inter-agency body also cut the estimated revenue collections from P2.61 trillion 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 pP42 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 rate (from 30 percent to 25 percent) to provide much-needed assistance to the business sector and help micro, small, and medium enterprises (MSMEs) retain their workers," Avisado said.

The DBCC is also eyeing a higher deficit target for this year from earlier projection of 8.4 percent of GDP to 9.6 percent of GDP; from 6.6 percent to 8.5 percent in 2021; and from 5.0 percent to 7.2 percent in 2022.

Finance Secretary Carlos Dominguez III said the deficit will be financed through a borrowing mix of 75 percent domestic and 25 percent foreign.

Despite the adjustments in deficit spending, Avisado said, "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." Celerina Monte/DMS