DBCC’s revised growth target is too ‘meager,’ say analysts

By Luisa Maria Jacinta C. Jocson, Reporter

THE DEVELOPMENT Budget Coordination Committee’s (DBCC) latest revision to the 2024 growth outlook is too insignificant, analysts said as they urged the government to focus on efforts to mitigate local and global headwinds.

At its Dec. 15 meeting, the DBCC narrowed next year’s gross domestic product (GDP) growth target to 6.5-7.5% from 6.5-8% previously. However, the DBCC kept this year’s goal at 6-7%.

“The adjustment is meager, and it is almost meaningless to make the revision. The only way to make sense of it is to think of it as a credibility problem,” Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said in an e-mail. “Foreign investors would like to invest in countries where managers are accountable and credible.”

Most multilateral institutions’ Philippine growth forecasts do not meet the lower end of the DBCC’s target range for 2024, including the World Bank (5.8%), the International Monetary Fund (6%) and the Asian Development Bank (6.2%).

Mr. Lanzona said the growth targets should reflect expectations of a global economic slowdown and persistent inflation next year.

Sonny A. Africa, executive director of think tank Ibon Foundation, said the lower end of the target should have also been revised.

“The DBCC revising the upper end of its growth targets, however, does not really correct this chronic overestimation and seems to be mainly a response to clearly adverse trends. Even the lower end should have been adjusted downwards,” he said in a Viber message.

Mr. Africa noted that household consumption, the biggest source of growth, has been slowing down. This could be further exacerbated by poor employment figures.

“Less work and, it must be stressed, worsening informality and quality of work even among reported employment is not a favorable leading indicator for household consumption that still accounts for over 70% of GDP,” he added.

Private consumption grew by 5% in the third quarter, its weakest pace in two years.

Mr. Africa also said that government expenditures cannot be relied on for growth as the administration focuses on fiscal consolidation.

“Foreign investments and exports have become an unfortunate crutch for aggregate demand and these are set to weaken with slowing growth in the United States, Japan, China and most of Europe next year,” he added.

On the other hand, Bienvenido S. Oplas, Jr., president of a research consultancy and of the Minimal Government Thinkers think tank, said the revised DBCC growth target for next year is still within reach.

“It’s a good adjustment while keeping the optimism… a target of 6.5-7.5% in 2024 is achievable for the Philippines,” he said in a Viber message.

“Our big population — more workers and entrepreneurs, more producers and consumers — can have a dynamic domestic economy (and serve as a) buffer should the external economy deteriorate further in 2024 and beyond,” he added.

Mr. Lanzona said the government must focus on programs to mitigate the impact of a global slowdown.

“The crucial issue nonetheless is whether these global trends are going to have an impact on the country’s aspirations to reach upper middle-income status by 2025 or 2026. The position that we cannot do anything about world conditions, as the revised DBCC growth rates would indicate, does not seem consistent and forward-looking with these objectives,” he said.

“It would have been more optimistic to say that because they are cognizant of the slowing economic trends globally and inflationary pressures, the government will be putting in place reforms and programs that can offset these trends. Instead, they have chosen a lower growth rate,” he added.

The Marcos administration is hoping the Philippines will reach upper middle-income status by 2025.

An upper middle-income country means having a gross national income (GNI) per capita income range of $4,466 to $13,845. The World Bank currently classifies the Philippines as a lower middle-income country with a GNI per capita of $3,950.

REFORMS NEEDED
The government should implement reforms to support inclusive growth without leaving the most vulnerable behind, Mr. Africa said.

“The administration needs to drastically rethink its approach to the economy with more concern for improving employment and family incomes, spending more to improve agriculture and establish Filipino industries rather than be a mere low value-added location for foreign investors and mobilizing domestic finance for development rather than keep wealth passive in the hands of a few,” he said.

The DBCC in its statement last Friday said that it is committed to “continuing its proactive efforts to sustain the high-growth trajectory of the Philippine economy and mitigate the lingering effects of high inflation amid a slower global economic scenario.”

“Pursuing a whole-of-government approach and a whole-of-society approach, we will strive to implement targeted measures, structural reforms, and strategies that will create a sustainable and future-proof economy for a significant improvement in the quality of life of Filipinos,” it added.

DBCC REVISIONS
Aside from adjusting its GDP target, the DBCC also revised its inflation assumption to 6% this year from a range of 5-6% previously. This would be in line with the Bangko Sentral ng Pilipinas’ (BSP) baseline forecast for 2023.

“The inflation rate is expected to return to the target range of 2% to 4% in 2024 until 2028,” the DBCC added.

Assumptions for Dubai crude oil were also adjusted to $82 to $85 per barrel this year from $70 to $90 per barrel previously due to the decline in global oil inventories. It is expected to ease further to $65 to $85 per barrel from 2025 to 2028.

Foreign exchange rate assumptions were also revised to P55.50-P56 per dollar this year from P54-P57.

“It is expected to reach P55 to P58 against the US dollar from 2024 to 2028. The peso will continue to be supported by structural foreign exchange inflows, narrower current account deficit projections, and ample foreign exchange reserves,” the DBCC added.

Exports and imports of goods are now expected to contract by 4% and 3% respectively this year. This is a reversal of the 1% growth in exports and 2% growth in imports earlier projected by the DBCC.

For next year, goods exports and imports are seen growing by 5% and 7% respectively, a revision from the 6% and 8% assumptions previously.

“For 2024, goods exports growth forecast is supported mainly by the upturn in demand for semiconductors, while goods imports are expected to be propped up by infrastructure investments and increased domestic production capacity,” the DBCC said.

“Meanwhile, for 2025 to 2028, goods exports and imports growth rates are expected to return to their pre-pandemic levels of 6% and 8%, respectively, reflecting the anticipated increase in demand and trade activities globally and domestically,” it added.

Meanwhile, the DBCC also revised its medium-term fiscal program.

This year, it sees revenues hitting P3.847 trillion from P3.729 trillion earlier due to the “anticipated implementation of priority tax measures over the medium term.”

The outlook for government expenditures was also revised upward to P5.34 trillion from P5.228 trillion previously. The DBCC said this was driven by accelerated spending by government agencies.

“Based on the revenue and spending outlook, it is anticipated that the deficit program will gradually return to pre-pandemic levels by 2027 from this year’s emerging deficit-to-GDP ratio of 6.1%,” it added.

For 2025, the national budget is also proposed to be set at P6.12 trillion, equivalent to 20.5% of GDP. This is also 6% higher than the P5.768-trillion budget for 2024.