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PHL slashes GDP growth outlook amid virus fight

The Philippine economy’s recovery is dependent on the pace of its mass vaccination campaign, which has picked up pace as more vaccines arrive. — PHILIPPINE STAR/ MICHAEL VARCAS

By Beatrice M. Laforga, Reporter

THE GOVERNMENT slashed its growth target for this year and the next, as the renewed spike in coronavirus disease 2019 (COVID-19) cases and strict lockdown curbs hobble the economy’s recovery.

In its 179th meeting on Tuesday, the Development Budget Coordination Committee (DBCC) downgraded its gross domestic product (GDP) growth target to 6-7% from 6.5-7.5% penciled in last December 2020. However, this was still an improvement from the record 9.6% contraction in 2020.

“The emerging GDP growth projection is slightly adjusted to 6-7% from 6.5-7.5% in view of the emergence of new COVID-19 variants and the reimposition of enhanced community quarantine (ECQ) in the National Capital Region (NCR) Plus area during the second quarter of the year,” the DBCC said in a joint statement.

Economic managers expect the economy to return to its pre-crisis level by next year. Next year’s GDP is expected to grow by 7-9%, lower than the previous target of 8-10%. The economy’s growth is seen to slow to 6-7% in 2023 and 2024.

“The effects of the COVID-19 pandemic may remain in the short term, but we are optimistic that the economy will return to its upward growth trajectory starting this year. This can be achieved through the accelerated implementation of the country’s recovery package and rollout of the national vaccination deployment to cover a broader segment of the population,” the DBCC said.

The economy remained in a recession in the first quarter after contracting by 4.2%. This marked the fifth consecutive quarter of decline due to the coronavirus pandemic.

The government has gradually eased the strict lockdown measures reimposed in Metro Manila and its nearby provinces from March to May to curb the virus surge. The daily number of new COVID-19 cases have started to dwindle since then, with only 4,487 new infections recorded on Tuesday from a high of 15,000 last month, according to the Health department.

However, the economy’s recovery is dependent on the pace of the country’s mass vaccination campaign, which has been picking up as more vaccine supplies arrive. The government earlier said 35% of 110 million target Filipinos may be vaccinated against the coronavirus by August.

The DBCC maintained a 2-4% inflation target range for this year until 2024.

Amid a faster rebound in global economy, 2021 assumptions for growth in goods exports were increased to 8% from 5% previously, while the expansion of goods imports was pegged at 12%, from 8%, previously.

The merchandise exports sector is expected to pick up by 6% each year from 2022 to 2024, while goods imports will rebound faster at 10% next year (from 8% previously), and by 8% in the next two years.

Services exports are expected to increase at 6% over the medium term, while growth in services imports was pegged at 7% this year, and 8% in 2022-2024.

Socioeconomic Planning Secretary Karl Kendrick T. Chua during the briefing said the economy will have to grow by at least 10% in the next three quarters to meet the lower-end of the revised growth target this year.

“The second important element in this assumption is that we begin to accelerate significantly, our vaccination efforts in the areas of highest risk, and that includes the NCR Plus and the larger cities where the cases are quite high,” Mr. Chua said.

The DBCC said the target can be achieved if the government will strengthen its prevention, isolation and treatment strategies; adopt digital tools for its contact tracing efforts; and release P17-billion to fund additional social programs to help affected sectors.

“A version of this proposal is currently being deliberated in the Lower House, and is contingent on raising additional savings and revenues to remain deficit neutral,” economic managers said.

Economic managers also revised their medium-term fiscal program in the next four years.

The DBCC hiked the budget deficit cap to 9.4% of GDP (from 8.9%), after it increased the projected total spending to P4.74 trillion from P4.233 trillion due to the additional funds for the stimulus package and vaccination program. The target for state revenues was kept at P2.88 trillion.

It also raised the estimated deficit-to-GDP ratio for next year to 7.7% from 7.6%, previously. This will go down to 6.4% in 2023 and 5.4% in 2024.

Projected revenues for next year were trimmed to P3.29 trillion from P3.314 trillion, while the expected total disbursements were kept at P4.95 trillion.

For 2023, the economic team expects to generate P3.59 trillion in total revenues and spend P5.11 trillion. This will rise to P4 trillion for revenues and P5.4 trillion for disbursements in 2024.

“The estimated disbursements for 2022 to 2024 already take into account the proposed Growth Equity Fund (GEF), which will be established in line with the implementation of the Supreme Court Ruling on the Mandanas-Garcia case. The GEF aims to assist poorer Local Government Units (LGUs) in addressing the problems of marginalization, unequal development, and high poverty incidence,” the interagency committee said.

While the projected debt stock was not disclosed during Tuesday’s briefing, Finance Secretary Carlos G. Dominguez III said they expect the debt pile to remain below 60% of GDP by the end of the year.

“We are preparing to sell assets, essentially, certain large mines that are under the management of the PMO (Privatization and Management Office), and with the developments in copper prices internationally the values of those assets have certainly increased. That will be one of the large sources to fund our future deficit,” Mr. Dominguez said.

The Finance chief maintained that the next stimulus program will be deficit neutral where funding sources will mainly come from realigned budgets and remittances from state-run firms, among others.

The cabinet-level DBCC is composed of heads of the Department of Budget and Management, National Economic and Development Authority, the Department of Finance, as well as the Executive Secretary. The Bangko Sentral ng Pilipinas also sits as the committee’s resource institution.

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