With global demand and supply constrained by the COVID-19 pandemic, the government economic team has slashed the country’s external trade growth targets even as it expects domestic inflation to settle within a slightly lower range this year.
The Cabinet-level Development Budget Coordination Committee (DBCC), via ad referendum, has scaled down the growth goals for merchandise exports to 0.5 percent and for imports to 3 percent, from 4 percent and 8 percent, respectively.
Budget Undersecretary Laura Pascua told the Inquirer on Thursday that the revised but still preliminary exports growth target “was due to both the slowing of global growth and the high dependence of our exports on China.”
As for the less rosy imports outlook, Pascua attributed it to “the reduction of the projected 2020 GDP (gross domestic product) growth from 6-7 percent to the worst-case scenario of negative 1 percent to zero, and lower global oil prices.”
The DBCC nonetheless sees headline inflation this year at between 1.75 percent and 3.75 percent, below the original 2-4 percent goal.
The DBCC only had preliminary and partially approved macroeconomic targets due to constraints and uncertainties brought about by the pandemic.
Pascua said the Bangko Sentral ng Pilipinas (BSP), the Department of Finance and the National Economic and Development Authority would do a second round of projections taking into consideration new developments. It was during this March 27 DBCC ad referendum approval that economic managers projected GDP, at base year 2000, to post zero growth or contract by 0.8-1 percent.
The Philippine Statistics Authority this week rebased national accounts such as GDP to year 2018, such that the DBCC would adjust macroeconomic targets before submitting the P4.64-trillion 2021 national cash budget proposal to Congress, Finance Secretary Carlos Dominguez III said.
In an investor call with Standard Chartered Bank on April 22, BSP Governor Benjamin Diokno said “preliminary assessment indicates a U-shaped recovery” for the Philippine economy.
“GDP could also recover more strongly once the fiscal and monetary stimulus gain traction and workers and firms resume operations,” Diokno said.
“Evidence suggests that (the BSP’s policy) measures have stabilized broad funding conditions, improved market liquidity and reduced volatility, but the shape of economic recovery remains highly uncertain with risks heavily tilted to the downside,” Diokno said.
He said the immediate challenge was to provide a tangible boost to the economy through the right combination of fiscal response and monetary measures.
As the government intends to ramp up borrowings from multilateral and bilateral sources to finance aid for vulnerable sectors, health care and medical response, and an economic rebound postpandemic, the DBCC had set the budget-deficit ceiling at 5.3 percent of GDP from 3.2 percent previously.
Pascua said the wider 2020 budget deficit cap had a nominal value of P990 billion.
The debt-to-GDP ratio will also rise to 46.7 percent in 2020 from 41 percent last year.
Dominguez said that such a higher debt-to-GDP ratio would remain “low” compared with the Philippines’ neighbors.
Under the administration’s P1.49-trillion four-pillar socioeconomic strategy against COVID-19, the government planned to borrow an additional P310 billion from foreign lenders to augment funds.
Temporary unemployment was expected to hit 1.2 million.
These assumptions took into consideration the impact of COVID-19 on consumption, exports, remittances, tourism and travel, as well as the ongoing and a possible extension of the enhanced community quarantine in Luzon and other parts of the country if the pandemic would continue wreaking havoc on the economy until the middle of the year.