We, the members of the Development Budget Coordination Committee (DBCC), held the committee’s 174th meeting today to revisit the Duterte administration’s medium-term fiscal program and macroeconomic assumptions in light of recent local and global developments.

 

Revenue collections are projected to reach PhP 2.820 trillion in 2018, equivalent to 16.1% of Gross Domestic Product (GDP), with the Tax Reform for Acceleration and Inclusion (TRAIN) contributing PhP 63.3 billion. This is slightly lower than the original PhP 2.846 trillion revenue program for 2018 with the deferred implementation of E-receipts and fuel marking under TRAIN.

 

The implementation of the TRAIN Law has been very satisfactory. We urge Congress to pass the succeeding packages of the Comprehensive Tax Reform Program (CTRP) to put in place a simpler, fairer, and more efficient tax regime while financing the country’s development priorities.

 

In addition, disbursements in 2018 are targeted to hit PhP 3.346 trillion, or 19.1% of GDP. The adjustment from the original disbursement program of PhP 3.370 trillion is due to the updated revenue projections for 2018.

 

The strong momentum of public spending will be sustained as the government transitions to an annual cash-based budgeting system. In this scheme, all government programs and projects budgeted for the fiscal year should be implemented and delivered in the same fiscal year. This will address underspending, a perennial problem of the bureaucracy, while ensuring the prompt delivery and completion of economic and social services of the government.

 

The deficit is set at 3.0% of GDP in 2018, amounting to PhP 526.8 billion in nominal terms. The deficit will then be expanded to 3.2% of GDP for next year, reaching PhP 624.4 billion, in order to fund key priorities of the government, particularly infrastructure and investments in human capital development. The deficit target will then be brought back to 3.0% of GDP in 2020 until 2022.

 

Revised Macroeconomic Assumptions

We have also revised the government’s medium-term macroeconomic assumptions for 2018 to 2022 to reflect developments at the national and global level, including higher world oil prices, tightening of monetary policy in advanced economies, and higher domestic inflation.

 

Inflation forecasts for this year and next year have been adjusted upwards to 4.8 - 5.2% and 3.0 - 4.0%, respectively. Meanwhile, the inflation forecasts from 2020 to 2022 have been retained at 2.0 - 4.0%. This is consistent with the government’s assessment that inflation will go back to the target level by next year.

 

We are optimistic that the administration has taken enough measures to tame inflation in the last quarter of 2018 and the full year of 2019. Administrative Order No. 13, s. 2018 and Memorandum Orders No. 26 to 28 have been issued last month to boost food supply and bring down the price of staple food items. We expect that Congress will pass the Rice Tariffication Bill before the end of the year. This measure can bring down the price of rice by PhP 4 to 7 per kilogram.

 

On the monetary policy front, the Bangko Sentral ng Pilipinas (BSP) has raised policy rates by a cumulative 150 basis points since May 2018 to anchor inflation expectations.

 

The assumption for the USD price of Dubai crude oil per barrel has also been adjusted. For 2018, the price of Dubai crude oil per barrel is expected to average USD 70 - 75. For 2019, the price range is projected to increase to USD 75 - 85. In 2020, this range is forecasted to drop to USD 70 - 80 and as low as USD 65 - 75 for 2021 and 2022. 

 

In addition, the PhP-USD exchange rate is likely to average PhP 52.5 - 53 against the USD, up from PhP 50 - 53, for 2018 with the range adjusting to Php 52 - 55 for 2019 until 2022, up from PhP 50 - 53 per USD. 

 

Furthermore, the assumptions for the 364-day Treasury bill rate and the 6-month London Inter-bank Offered Rate have been altered. The average T-bill rate will range from 4.4 - 4.6% in 2018, up from 3.0 - 4.5%; in 2019 - 2022 the average T-bill rate is projected to range from 4.5 - 5.5%, up from 3.0 - 4.5%.

 

Lastly, the GDP growth target range has been adjusted from 7.0 - 8.0% to 6.5 - 6.9% for 2018 while the growth targets for 2019 to 2022 remain unchanged.

 

Strategies to Spur Growth

Given the change of the GDP growth target range, the government has proposed key strategies to spur the country’s economic growth from the demand and supply sides.

 

Demand-side strategies include the following:

●    increasing household consumption with rice tariffication that will lower rice prices, TRAIN’s 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 2nd package of CTRP, 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.

 

Lastly, 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.

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% in 2015 to 14.0% in 2022.

 

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