7 Aug 2020 – Economy to shrink by over 5% in 2020

By Anna Leah E. Gonzales, Manila Times, 7 August 2020

The interagency Development Budget Coordination Committee (DBCC) on Thursday further trimmed its economic growth forecast for this year to -5.5 percent from its earlier -2 to -3.4-percent range to take into account the worsening impact of the coronavirus crisis on tourism, trade and remittances.

If correct, the revised outlook would become the fastest economic decline in the country since the -6.5 percent recorded in 1985.

In a joint statement, members of the DBCC — the Department of Budget and Management, the Department of Finance, and the National Economic and Development Authority — explained the move was part of the “adjusted medium-term macroeconomic assumptions, fiscal programs and growth targets” they adopted on July 28 for submission to Congress.

The statement comes after the economy slipped into a technical recession in the second quarter after the country’s gross domestic product contracted by a record 16.5 percent, the lowest since 1981.

Despite this, the DBCC is confident the country is on track to recover next year as domestic output growth is expected to accelerate to 6.5 to 7.5 percent in 2021 and 2022 on the back of the government’s Build, Build, Build infrastructure program and revitalization of the industry and services sectors.

The panel also narrowed its inflation rate assumption for 2020 to between 1.75 and 2.75 percent on the back of subdued demand. Assumption for 2021 to 2022 was kept at 2 to 4 percent.

“This means that prices in the typical consumption basket of Filipino families will remain stable and predictable,” it said.

The peso-US dollar exchange rate assumption was also narrowed to P50 to P52 to the greenback for this year, but kept at P50 to P54 against the American currency for the next two.

Growth in exports and imports of goods this year is projected to contract by 16 percent and 18 percent, respectively. However, growth in exported goods is forecast to pick up to 5 percent and imported goods to 8 percent in 2021 and 2022 on the anticipation that global and domestic demand would recover.

Remittances from overseas Filipino workers are projected to fall by 5 percent this year, but seen to bounce back and grow by 4 percent in 2021 and 2022.

Revenue collections

On revenue collections for 2020, the DBCC cut its estimate to P2.52 trillion, or 13.4 percent of GDP, from the P2.61 trillion projected in May.

The reduction “is a result of deeper contraction in real GDP growth and the P42 billion in estimated foregone revenues from the implementation of the proposed Corporate Recovery and Tax Incentives for Enterprises (Create) Act,” the panel said.

This measure, “which will reduce the corporate income tax rate from 30 percent to 25 percent, [wil] provide much-needed assistance to the business sector and help micro, small, and medium enterprises (MSMEs) retain their workers,” it added.

Disbursements for 2020 was seen to increase by P110.0 billion to P4.34 trillion, equivalent to 23 percent of GDP. The additional spending anticipates the P140-billion additional appropriations for the proposed Bayanihan to Recover as One (Bayanihan 2) Act.
For 2021, revenues are expected to slightly recover and reach P2.72 trillion, or 13.2 percent of GDP, while disbursements are seen to increase to P4.47 trillion, or 21.6 percent of GDP.

Revenue and disbursement projections are at P3.03 trillion, or 13.3 percent of GDP, and P4.68 trillion, or 20.5 percent of GDP, by 2022.

Given the revenue and disbursement plans approved by the DBCC, the deficit target over the medium-term is expected to increase from 8.4 percent to 9.6 percent of GDP in 2020, from 6.6 percent to 8.5 percent in 2021 and from 5.0 percent to 7.2 percent in 2022.
Despite these adjustments in deficit spending, the DBCC is confident that the national government’s debt would be kept within the internationally recommended threshold of 60 percent by 2022.