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Top-level budget body updates medium-term fiscal program

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Economic managers (from left) Finance Secretary Carlos G. Dominguez III and Budget Sec. Benjamin E. Diokno, as well as central bank Monetary Board member Felipe M. Medalla, answer reporters' questions after the last meeting for 2017 of the Development Budget Coordinating Committee on Friday.

THE DEVELOPMENT Budget Coordinating Committee (DBCC) in its 171st meeting — and the last for the year — on Friday updated the government’s medium-term fiscal program with downscaled revenue projections due to the recently enacted tax reform law, while it left most macroeconomic assumptions unchanged.

Although the 2018 national budget — Republic Act No.10964 enacted last Dec. 19 — remained steady at P3.767 trillion, projected revenues are now at P2.788 trillion, 1.8% less than the P2.84 trillion in the DBCC’s June 9 meeting.

The new projection compares to P2.387 trillion in “emerging” actual revenues, according to a table provided by the Department of Finance (DoF).

Expenditures on the other hard are now at P3.313 trillion, 1.5% less than the initial P3.364 trillion, but 18.6% larger than the actual P2.794 trillion so far this year — putting the 2018 budget deficit at P523.7 billion.

“The medium-term fiscal targets of the government were updated by the DBCC with regards to revenues, disbursements and the financing of borrowings. This is in light of the developments and projections in fiscal and economic conditions in the medium-term,” the DBCC, chaired by Budget Secretary Benjamin E. Diokno, said in a statement.

“The DoF proposed the medium-term revenue program inclusive of the revenue-generating effects of the recently passed Tax Reform for Acceleration and Inclusion (TRAIN). The DBCC then approved the said medium-term revenue targets proposed by the DoF.”

The TRAIN’s revenues in 2018 are projected at P82.3 billion, according to the DBCC,38.49% less than the P133.8 billion previously expected.

Finance Secretary Carlos G. Dominguez III, however, said President Rodrigo R. Duterte’s veto of parts of the TRAIN law, RA 10963, as well as approval next quarter of a general tax amnesty, estate tax amnesty, Motor Vehicle Users Charge increase and easing of bank secrecy restrictions should help shore up additional revenues.

“Actually with the veto, we estimate the revenues will go up close to P90 billion. That’s only for 1A. Part B is P48 or 40 billion more. We expect that passed by the first quarter,” Mr. Dominguez said in a press conference after the DBCC meeting.

The budgets for 2019 to 2022 were likewise retained at P4.213 trillion, P4.676 trillion, P5.102 trillion and P5.661 trillion, respectively, but had tweaks in their revenue, disbursement and deficit programs, while retaining its deficit ceiling at 3.0% of gross domestic product (GDP).

The year 2019 will see revenues at P3.134 trillion from P3.244 trillion projected initially, and disbursements at P3.708 trillion from P3.82 trillion, yielding a fiscal deficit of P574.5 billion from P575.6 billion.

The year 2020 will see revenues of P3.53 trillion from P3.638 trillion previously, disbursements at P4.161 trillion from P4.271 trillion and a deficit of P630.4 billion from P633.7 billion.

The year 2021 will see revenues at P3.929 trillion from P4.019 trillion and disbursements at P4.622 trillion from P4.716 trillion, resulting in a P692.2-billion fiscal gap from P696.9 billion.

The year 2022 will see revenues of P4.387 trillion from P4.504 trillion, disbursements of P5.148 trillion from P5.272 trillion and a deficit of P761 billion from P767.9 billion.

BORROWING MIX
However, it adjusted its borrowing mix next year to 74-26% in favor of local sources, and programmed an 80-20% ratio for 2019 until 2022.

“That’s because there will be a global commercial bond issue; as you know these issues are lumpy,” said Bangko Sentral ng Pilipinas Monetary Board member Felipe M. Medalla when sought for an explanation.

The government also expects government debt to decline to 37.9% of GDP in 2022 from 42% this year.

“The medium-term fiscal program is geared to support the development objectives of the Duterte administration. We will ensure that all the revenues collected and monies disbursed will be for the benefit of our people,” said Mr. Diokno.

At the same time, the government retained its GDP and inflation projections.

“We think we’re doing well that we didn’t find a need to change much of our assumptions until 2022,” he said.

“The growth rate, we didn’t change it. 7-8% next year until 2022,” added the Budget chief.

Inflation forecasts were likewise kept at 2-4%, despite the tax reform’s expected inflationary effects that could contribute up to a percentage point.

“The long-term effects of TRAIN are different from short-term effects. The long-term effects are anti-inflation, to the extent that infrastructure will reduce transportation cost, increase productivity. Initially you will have cost-push effect in the higher indirect taxes. But our models say that at most 1%, 2018 and half a percent in 2019. If an increase in inflation is transitory, no need for a monetary policy response because after all eventually inflation will settle down,” said Mr. Medalla.

He added that the planned shift to tariff from quantitative restriction on rice imports should contribute to the easing of inflation on the staple.

The DBCC also kept merchandise import growth projections “unchanged” at 10% in 2018 and 2019 and 11% from 2020 to 2022, as well as the 364-day Treasury bill rates at 2.5-4% from 2018 to 2022, according to Mr. Diokno.

At the same time, the DBCC adjusted upward assumptions in foreign exchange, export growth and Dubai crude oil prices.

Merchandise exports are now expected to grow by 9.0% next year from 7.0% programmed in its June 9 meeting, while it retained the 9.0% assumption from 2019 to 2022, according to Mr. Diokno.

Peso-dollar rate assumption was raised to P49-52 from 2018 to 2022 from P48-51 previously.

Dubai crude oil price assumptions were likewise raised to $50-65 per barrel for next year until 2022 from $45-60 per barrel in 2018 and $50-65 per barrel for 2019 to 2022 in its earlier assumptions.

“There’s a slight adjustment on the peso from 2018 to 2022. We changed it to P49-52 per dollar this adjustment however should not be a cause of concern. A peso depreciation is actually favorable to our fiscal position,” said Mr. Diokno.

“We adjusted Dubai crude oil prices we raised it slightly to $50-65 per barrel in 2018, and we retain it until 2022. With regards to interest rates, we kept it at 2.5-4%,” he added. — Elijah Joseph C. Tubayan

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