DBCC cuts inflation, trade assumptions

STATE BUDGET PLANNERS on Thursday slashed inflation, trade and foreign exchange assumptions for this year, even as they kept overall economic growth targets intact.

The Development Budget Coordination Committee (DBCC) — which consists of the Department of Budget and Management, the Finance department, the National Economic and Development Authority, the Office of the President and the Bangko Sentral ng Pilipinas — in its 176th meeting slashed its inflation rate assumption for 2019 to 2.7-3.5% from 3-4% previously due to the slowing general increase in prices of widely used goods and services after last year’s successive multi-year highs.

At the same time, inflation assumptions for next year up to 2022, when President Rodrigo R. Duterte ends his six-year term, have been maintained at 2-4%.

It also revised the peso-dollar exchange rate assumption to a stronger P51-53 against the greenback for 2019, compared to P52-55 previously “projecting the possible appreciation of the peso with easing inflation pressures and positive market sentiment with the recent sovereign rating upgrade of the Philippines,” the DBCC said in a statement, referring to S&P Global Ratings’ April upgrade of the Philippines’ credit score to “BBB+” from “BBB” — two notches above minimum investment grade, a notch below “A” grade and the country’s best debt score so far.

Assumption for goods export growth was cut to two percent for this year from six percent previously “due to slower global growth” and maintained at six percent from 2020 to 2022.

Similarly, the assumption for goods import growth was reduced to seven percent for this year from nine percent previously, but kept at eight percent from 2020 to 2022.

Service export growth assumption was cut to nine percent for this year from 10% and set also at nine percent from 11% previously for 2020-2022, while service import growth was cut to three percent this year from five percent, to four percent for 2020 from six percent, and to five percent for 2021-2022 from seven percent previously.

The assumption for dollar price of Dubai crude oil — used as a benchmark for local fuel products — was maintained at $60-75 per barrel for 2019-2022.

At the same time, gross domestic growth targets were maintained at 6-7% for this year, at 6.5-7.5% in 2020 and at 7-8% in 2021-2022.

State budget planners also maintained projected revenues at P3.15 trillion for this year, equivalent to 16.4% of GDP, while disbursements are targeted at P3.77 trillion (down slightly from P3.78 trillion as of March projections), or 19.6% of GDP.

For next year, state revenues are projected to increase to P3.54 trillion (down from P3.676 trillion in the previous projection), equivalent to 16.7% of GDP, while disbursements are programmed at P4.21 trillion (down from P4.313 trillion), equivalent to 19.9% of GDP.

Given this fiscal picture, the budget deficit ceiling will be kept at equivalent to 3.2% of GDP this year, and slightly raised to that level from 2020 to 2022 from three percent as of March projections. — with Reicelene Joy N. Ignacio