By Elijah Joseph C. Tubayan
Reporter
THE DEVELOPMENT Budget Coordination Committee (DBCC) on Tuesday slashed economic growth and fiscal goals and raised inflation forecasts in the face of tighter credit conditions, rising oil prices and a worsening Sino-US trade row.
The DBCC cut the gross domestic product (GDP) growth target for 2018 to 6.5-6.9%, from 7-8% in its July meeting, but maintained the 2019-2022 target at 7-8%.
It also raised inflation forecasts to 4.8-5.2% for this year and 3-4% in 2019, from 4-4.5% and 2-4%, respectively, while keeping the 2-4% target range for 2020-2022.
“We have agreed to revise the medium-term macroeconomic assumptions to reflect the developments in national and local level, high global prices, tightening monetary policy, higher domestic inflation,” Budget Secretary Benjamin E. Diokno said in a press conference at the Bangko Sentral ng Pilipinas Complex after the 174th meeting of the DBCC, which he chairs.
“We have tempered our optimism with prudence and good judgement in terms of the reality. We feel we can still achieve up to 6.9%,” Socioeconomic Planning Secretary Ernesto M. Pernia said in the same briefing.
GDP grew 6.3% last semester against 6.6% in 2017’s first half.
“We have to all realize that we are living in a very different world now. Six months ago there were only rumors of a trade war starting. In May the trade war actually began and has escalated, adding the large measure of uncertainty into the world economic picture,” said Finance Secretary Carlos G. Dominguez III.
“Therefore, prices of oil have risen very steeply, interest rates which factor in risks have increased and the US normalization of interest rate policy has continued and looks like will continue in the future, driving interest rates up. The world starting in May has been difficult and I think our estimates and projections just reflect these,” he added.
Headline inflation averaged five percent in the nine months to September against the central bank’s 2-4% target range for full-year 2018.
Mr. Diokno said state economic managers are “optimistic that the administration has taken enough measures to tame inflation in the last quarter of 2018 and the full year of 2019,” citing President Rodrigo R. Duterte’s orders last month to boost supply and streamline distribution of farm goods, as well as the impending replacement of rice import quotas with a regular tariff scheme that is expected to slash retail prices of the staple by P7 per kilogram. Rice carries one of the heaviest weights in the theoretical basket of widely used goods at 9.6%.
The Bangko Sentral ng Pilipinas has raised benchmark interest rates by a cumulative 150 basis points since May in an effort to douse inflation expectations.
The DBCC also now expects the foreign exchange rate to average P52.5-53 per dollar in 2018 and P52-55 for 2019 until 2022, from P50-53 previously.
They also see Dubai crude averaging $70-75 per barrel (/bbl) this year, rising further to $75-85/bbl in 2019, and then easing to $70-80/bbl in 2020 and P65-75/bbl in 2021-2022. Previously, the body programmed $55-70 in 2018 and $50-65 from 2019 to 2022.
Malacañan Palace on Monday announced the suspension of a P2 per liter excise tax hike for oil scheduled in January, in the face of projections that the price of Dubai crude — Asia’s benchmark — will average more than the $80/bbl trigger set under the tax reform law for such deferment in the remaining three months of the year.
INFRASTRUCTURE DRIVE
Mr. Diokno said that the DBCC will form a task force “to look into the different items in the budget that can be postponed or outright cut” in order to temper the fiscal impact of some P41 billion in foregone revenues expected from the oil tax hike suspension.
Saying that infrastructure spending “will be exempted” from cuts, he said the DBCC team will consider cuts in government vehicle purchases, personnel benefits for unfilled positions as well as some maintenance and other operating expenses.
Mr. Diokno also said that the DBCC slashed projected revenues this year to P2.820 trillion from P2.846 trillion initially “with the deferred implementation of E-receipts and fuel marking” under Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act — the first of up to five tax reform packages that took effect in January.
State expenditures are now programmed to hit P3.346 trillion this year from P3.370 trillion previously.
But the programmed fiscal deficit is unchanged at equivalent to three percent of GDP this year and 3.2% in 2019 on a planned spike in infrastructure spending, and three percent in 2020-2022.
“The strong momentum of public spending will be sustained as the government transitions to an annual cash-based budgeting system. In this scheme, all government programs and projects budgeted for the fiscal year should be implemented and delivered in the same fiscal year. This will address underspending, a perennial problem of the bureaucracy, while ensuring the prompt delivery and completion of economic and social services of the government,” said Mr. Diokno.
The DBCC also raised assumptions for the 364-day Treasury bill rate to 4.4-4.6% this year and to 4.5-5.5% in 2019-2022 from 3-4.5%.
Projected growth of goods exports was cut to two percent this year and six percent for 2019-2022, from nine percent previously.
Projected growth of goods imports was likewise reduced to nine percent in 2018 and 2019, and to eight percent for 2020-2022, from 10% across the board previously.
“We are fortunate we are not a trading nation [hence] our effect is not as bad as other countries,” said Mr. Dominguez.
“The source of domestic growth is our increase in domestic demand that’s because we are going into large infrastructure projects.”
BSP Monetary Board Member Felipe M. Medalla said: “This is not unique to the Philippines, but [is true of] all emerging markets.”
“To the extent coal, steel, aluminum prices fall, the impact of the standard of living of Filipinos may be much less relative to GDP numbers.”
Service exports are expected to grow nine percent this year and 11% in 2019-2022, as previously projected.
Service imports are projected at three percent this year, five percent in 2019, six percent in 2020, and seven percent in 2021-2022, from 10% across the board previously.

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