Rosier picture from economic team: Lower inflation, stronger peso in 2019

The Duterte economic team continues to paint a rosy picture of the future, seeing lower inflation this year hovering just between 2.7 to 3.5 percent.

Inflation projection for 2019 had been at a higher range of 3 to 4 percent but the Development Budget Coordination Committee (DBCC) said at a press conference that the government now expects a lower rate of increase in prices of basic goods in 2019.

Janet B. Abuel, acting budget secretary and chair of the DBCC, said it was “due to the government’s decisive steps to stabilize the general price level.”

Among these decisive steps, she said, was the full implementation of President Rodrigo Duterte’s orders last year to increase food supply and pass a law removing volume restrictions in rice importation “which opened up the rice sector and helped bring rice prices down.”

She said in 2020 until the last year of the Duterte administration in 2022, inflation was likely to hover between 2 to 4 percent per year.

As a result, the DBCC also expected a stronger peso in 2019 which would keep the peso-dollar rate to 51 to 53 per dollar from 52 to 55 per dollar previously.

Abuel said the economic team had projected a “possible appreciation of the peso with easing inflation pressures and positive market sentiment” following a credit rating upgrade of the Philippines, referring to the BBB plus rating given the country by debt watcher S&P Global Ratings last April. It was two notches higher than minimum investment grade.

Credit ratings are a measure of a government’s creditworthiness. As the stability of state finances is also related to a country’s performance, credit scores serve as a proxy grade for the economy.

Improved ratings would allow the government to demand lower rates when it borrows from lenders, which could translate to lower interests for consumers and businesses borrowing from banks using government-issued debt paper as benchmarks for their loans.

The Philippines currently enjoys investment-grade credit ratings from the top three debt watchers—Moody’s Investors Service, Fitch Ratings and S&P.

On growth of gross domestic product (GDP), the DBCC retained these targets—6 to 7 percent in 2019, 6.5 to 7.5 percent in 2020 and 7 to 8 percent in 2021 and 2022.

The economy grew 6.2 percent last year—a three-year low, mainly as inflation hit a 10-year high of 5.2 percent due to new or higher excise on consumer goods slapped by the Tax Reform for Acceleration and Inclusion (TRAIN) Act, skyrocketing global oil prices and domestic food supply bottlenecks, especially of rice.

In March, the DBCC downgraded the 2019 GDP growth target from 7-8 percent previously as the government operated using a reenacted 2018 budget at the start of 2019.

Duterte signed this year’s P3.7-trillion national budget only on April 15 as the two chambers of Congress squabbled over corruption-laden “pork” funds, leading to government underspending of at least P1 billion per day on public goods and services between January and April./TSB