DBCC keeps growth projections in medium term, but cuts expenditure program

June 9, 2017

The interagency Development Budget and Coordination Council (DBCC) has maintained growth prospects in the medium term, but cuts the expenditure program due to possible effect of the tax reform measure pending in Congress. The decision was made during the DBCC meeting on Friday at the Department of Finance in Pasay City. Budget Secretary Benjamin Diokno said gross domestic product (GDP) growth target is expected to remain at a range of 6.5 percent to 7.5 percent in 2017 and 7 percent to 8 percent from 2018 to 2022. "Expected drivers of economic growth include construction and infrastructure development, primarily fueled by the administration’s Build, Build, Build program," Diokno said. He said government spending is also seen propelling the economy as the government plans to expand its investment in human capital. However, the DBCC decided to slightly slash expenditure target for 2018 due to expected lower revenue brought about by possible implementation of the first package of the Comprehensive Tax Reform Program. The DBCC pegged the national budget for 2018 at P3.767 trillion, equivalent to 21.6 percent of GDP. This is lower compared to the initial P3.84 trillion target budget for 2018. With the implementation of the first tax reform package in 2018, revenues are projected to hit P2.841 trillion, which is 16.3 percent of GDP. The initial revenue estimate for next year was P2.913 trillion. But according to the budget department, revenue program is set to improve gradually to P4.504 trillion by 2022, equivalent to 17.8 percent of GDP. The House of Representatives has passed on third reading the proposed first package of the tax reform program after President Rodrigo Duterte certified it as an urgent bill. Finance Secretary Carlos Dominguez III said they hope Congress would finally pass the bill when it resumes session in July. The first tax reform package is expected to contribute P133.8 billion in revenues for 2018, P233.6 billion in 2019, P272.9 billion in 2020, P253.0 billion in 2021, and P269.9 billion in 2022. The projected revenues from the first package were based not from a watered down bill, which the Lower House passed. Dominguez hoped Congress would adopt the executive's proposed tax measure. The DBCC also revised export targets upward despite a review by the European Union of the Generalized System of Preferences Plus (GSP+) privileges to the Philippines, allowing 6,274 eligible products duty-free to the EU market. In order for a country to continue to benefit from GSP+, it should observe the 27 international treaties and conventions on human rights, labor rights, environment and governance. The Duterte administration has been accused of human rights violations due to alleged extrajudicial killings involving drug suspects. Duterte has declared an all out war against illegal drugs. Under the latest revision, DBCC raised goods export growth assumptions from 2 percent to 5 percent in 2017, 5 percent to 7 percent in 2018, and from 7 percent to 9 percent in 2019. Thereafter, exports growth will be maintained at 9 percent from 2020 to 2022. Global economic and political developments have directly influenced the trend in emerging market currencies, including the peso, DBM said. "We retain the 48-50 PHP per USD for 2017, while the forecast for the years 2018 to 2022 is adjusted to 48-51 PHP per USD. This in response to the resumption of the US Federal Reserve’s monetary policy tightening, where the expectations of higher US interest rates and stronger demand for the US dollar could pose depreciation pressure on the peso," Diokno said. He said the latest DBCC assumptions will be submitted to Duterte for his approval. (Celerina Monte/DMS)