Economic team cuts GDP growth target for 2018

Due to slower gross domestic product (GDP) growth in the first half, economic managers on Tuesday cut the target range for 2018 to 6.5-6.9 percent even as they unveiled strategies to boost economic expansion in the near term.

The Cabinet-level Development Budget Coordination Committee (DBCC) slashed this year’s GDP growth goal from 7-8 percent previously, while keeping the range for 2019 to 2022, Budget Secretary and DBCC chair Benjamin E. Diokno told a press conference.

While GDP growth averaged 6.3 percent in the first half—below the new target range, Socioeconomic Planning Secretary Ernesto M. Pernia said the economic team remained optimistic that the goal can still be achieved, “with a lot of prayers and given the measures we are pushing for.”

Diokno said the DBCC proposed key strategies aimed at spurring economic growth from both the demand and supply sides.

“Demand-side strategies include the following: increasing household consumption with rice tariffication that will lower rice prices, TRAIN’s [Tax Reform for Acceleration and Inclusion Act] social mitigating measures, and policy interventions in the education and labor sectors towards generating more decent, productive, and quality employment that provides adequate income for Filipino workers and their families; encouraging more investments by accelerating the infrastructure program, reducing the corporate income tax rate as proposed in the second package of the Comprehensive Tax Reform Program, reducing foreign investment restrictions and the cost of doing business; and boosting exports with the full implementation of the Export Development Plan and exploring additional trade and economic agreements,” Diokno said.

Also, “the supply-side strategies involve: agricultural development through high-value crops, increased access to innovative technologies, and intensified credit programs; investments in the capacity and technology of manufacturing; innovation in and timely implementation of construction projects; housing programs; energy security; the entry of new telecommunications firms and the consequent improvement in national broadband; sustainable tourism; and the completion and dissemination of master plans relating to transport, water and sanitation, and other areas,” Diokno added.

“We are confident that these measures of the Duterte administration will propel the economic growth of Philippines into the GDP growth target range, enable the economy to attain upper middle-income status, with gross national income per capita of $4,000, by end-2019 and reduce poverty from 21.6 percent in 2015 to 14 percent in 2022,” according to Diokno.

Finance Secretary Carlos G. Dominguez III attributed the lower growth target to a confluence of external developments, including the US-China trade war, higher global oil prices, as well as elevated interest rates.

“We have to all realize that we are living in a very different world now. Six months ago, there were only rumors of trade war starting in May—the trade war has actually begun and has escalated, adding large measure of uncertainty into the world economic picture. Therefore, prices of oil have risen very steeply. Interest rates, which factor in risks, have increased and the US normalization of their interest rate policy has continued, and it looks like it will continue in the future, driving interest rates up. So the world, starting in May, has been very difficult and I think our estimates and projections just reflect these things,” Dominguez said.

Despite these challenges, “we are confident that the Philippine economy will weather these storms abroad, but we are not complacent,” according to Dominguez.

“We are fortunate that our economy is strong enough and resilient enough to overcome these difficulties. We have a very strong banking sector, which is the result of a very good regulation and management by the Bangko Sentral ng Pilipinas. We have very high foreign exchange reserves—they are almost seven months of imports. And we have an administration that is closely coordinating their fiscal policy with monetary policy, so these issues will be addressed,” Dominguez added.

The DBCC expects the peso-dollar exchange rate to average 52.5-53:$1 this year and 52-55:$1 starting next year until 2022, a higher range than the previous assumption of 50-53:$1.

Due to the trade war, the economic managers also lowered the merchandise export growth forecasts to 2 percent in 2018 and 6 percent yearly from 2019 to 2022 from 9 percent previously.

Also, the DBCC reduced the revenue target for 2018 to P2.82 trillion from P2.846 trillion previously due to the “deferred implementation of e-receipts and fuel marking under TRAIN.”

As such, the DBCC adjusted the disbursement program for this year to P3.346 trillion from P3.37 trillion to keep the budget deficit cap at 3 percent of GDP or P526.8 billion. /kga