Gov’t cuts inflation outlook for 2019, expects wider budget deficit towards 2022

The inter-agency Development Budget Coordination Committee (DBCC) on Thursday slashed its inflation rate assumption for 2019 amid stabilizing commodity prices.

At a press conference in Manila, the DBCC said it has revised downward the inflation rate forecast for this year to the range of 2.7 to 3.5% from its earlier assumption of 3% to 4%.

The lower inflation outlook is "due to the government's decisive steps to stabilize the general price level," Budget Acting Secretary Janet Abuel told reporters.

"These include the full implementation of the presidential directives issued last year to increase the food supply and the passage of the Rice Liberalization Act, which opened up the rice sector and helped bring prices down," Abuel said.

In September 2018, President Rodrigo Duterte issued Administrative Order (AO) 13, which removed the constraints and non-tariff barriers on meat, fish and rice importation to address unabated price increases in basic commodities that pushed inflation to a nine-year high of 6.7 percent in October and September.

In February, Duterte signed into law the Rice Tariffication Act, which removed the quantitative restrictions on rice and imposed a 35-percent tariff on imports from the country's neighbors in Southeast Asia.

In June, the inflation rate slowed to its slowest in 21 months at 2.7%.

Budget deficit

The DBCC also increased its budget deficit target at 3.2% of gross domestic product (GDP) from 2020 to 2022 from an earlier fiscal program goal of 3% of GDP for the said period.

It maintained the deficit ceiling at 3.2% for 2019.

This is to "sustain the government's investments on infrastructure and human capital development," Abuel said.

For her part, Finance Assistant Secretary Ma. Teresa Habitan said that the wider deficit target for 2020 to 2022 is in part due to a change in the estimates in the revenue and disbursement program adopted by the DBCC.

For 2019, revenue collections are projected to reach P3.15 trillion, while disbursements are expected to hit P3.77 trillion.

"For 2020, revenues are seen to increase to P3.54 trillion, equivalent to 16.7% of GDP, while disbursements are programmed at P4.21 trillion or 19.9% of GDP," Abuel said.

Revenue and disbursement projections are estimated to rise to P4.42 trillion or 17.2% of GDP and P5.24 trillion or 20.4% of GDP, respectively, by 2022.

"The comprehensive tax reform program can help ensure a reliable revenue base and, more importantly, enhance the modernization of our economy. Completing the passage of the remaining tranches of the tax reform will ensure a steady revenue flow and equitable sharing of contributions for the government’s social and infrastructure programs while securing fiscal stability long into the future," Abuel said.

GDP target

The DBCC maintained the GDP growth target at 6% to 7% in 2019; 6.5% to 7.5% in 2020; and 7.0% to 8.0% in 2021 and 2022.

Dubai crude

"The assumption for the USD price of Dubai crude oil per barrel for 2019 to 2022 is retained between USD 60-75 per barrel," Abuel said.

Foreign exchange

The DBCC assumption for the Philippine peso-US dollar exchange rate is adjusted P51-P53:$1 for 2019 and calibrated at P51-P55:$1 from 2020 to 2022, "projecting the possible appreciation of the peso with easing inflation pressures and positive market sentiment with the recent sovereign credit rating upgrade of the Philippines."

Trade

In terms of external trade, the DBCC's assumptions in goods exports growth were set at 2% in 2019, due to slower global growth, and maintained at 6% from 2020 to 2022.

Goods imports growth projections were lowered to 7% in 2019, and maintained at 8% from 2020 to 2022.

Services exports growth assumptions were set at 9% from 2019 to 2022, while services imports growth were fixed at 3% in 2019, 4% in 2020, and 5% in 2021 and 2022.

"We remain steadfast in our commitment to build a more dynamic and competitive economy, one that will provide jobs to our workers, improve the living conditions of the poor, and create more opportunities for all law-abiding Filipinos," Abuel said.

The DBCC—comprised of the Department of Finance, the Department of Budget and Management, and the National Economic and Development Authority—held its meeting ahead of Duterte's fourth State of the Nation Address (SONA) on July 22, Monday.

The meeting is done to "revisit the government’s macroeconomic assumptions, medium-term fiscal program, and growth targets in time for the submission of the 2020 President’s Budget."

The DBM is aiming to submit the P4.1-trillion national budget for 2020 in  the second week of August. — BM, GMA News