We, the members of the Development Budget Coordination Committee (DBCC), reviewed the government’s medium-term macroeconomic assumptions, fiscal program, and growth targets for FY 2021 to 2024. This is in light of recent developments in the domestic and external environments, the release of updated data, as well as in preparation for the FY 2022 National Expenditure Program (NEP).
Real growth projections and underlying policy recommendations
For 2021, the emerging Gross Domestic Product (GDP) growth projection is slightly adjusted to 6.0 to 7.0 percent from 6.5 to 7.5 percent in view of the emergence of new COVID-19 variants and the reimposition of Enhanced Community Quarantine (ECQ) in the National Capital Region (NCR) Plus area during the second quarter of the year. Further, GDP is projected to return to pre-COVID-19 levels by growing at 7.0 to 9.0 percent in 2022, and will continue to grow by 6.0 to 7.0 percent in 2023 and 2024.
Our growth prospects and economic recovery will be underpinned by three interventions to arrest the spread of the virus and help the poor cope with the impact of the quarantines.
First is the intensified implementation of the prevent, detect, isolate, treat, and recover (PDITR) strategy and the full vaccination of the residents in areas with the highest risk, such as the NCR Plus, Pampanga, Cebu City, and Davao City. By targeting these areas, COVID-19 transmission can be dramatically reduced throughout the country.
Second is the reduction of the gap from detection to isolation of COVID-19 positive cases from 7 to 5 days, such as the use of digitally-assisted contact tracing. This could potentially reduce cases by around 51 percent, according to epidemiological models.
Lastly, around PhP 170 billion would be needed to fund supplemental social support for those hardest hit by the pandemic as well as to fund improved health protocols. A version of this proposal is currently being deliberated in the Lower House, and is contingent on raising additional savings and revenues to remain deficit neutral.
The DBCC approved the revised growth projections based on the following macroeconomic data and assumptions.
The GDP growth rate for the first quarter of 2021 improved with a slower contraction of 4.2 percent from an 8.3 percent decline in the fourth quarter of 2020. On a seasonally adjusted quarter-on-quarter basis, the economy grew by 0.3 percent.
The average inflation target for 2021 to 2024 is maintained at 2.0 to 4.0 percent.
Meanwhile, the price of Dubai crude oil per barrel is estimated to increase to USD 50 to 70 per barrel over the medium-term following the rise in global demand coupled with production cuts.
The PhP-USD exchange rate assumption was also adjusted to PhP 48 to 53 against the USD for 2021 to 2024.
Moreover, the 364-day Treasury bill rate assumption was recalibrated to 2.0 to 3.0 percent for 2021 and 2.0 to 3.5 percent for 2022, and was set at 2.5 to 4.0 percent for 2023 to 2024. This is primarily due to the Bangko Sentral ng Pilipinas’ (BSP) liquidity-enhancing measures and the expected uptrend in global interest rates over the medium-term as the global economy recovers. Meanwhile, the 6-month LIBOR assumption was maintained at 0.2 to 1.2 percent for 2021, 0.3 to 1.3 percent for 2022, 0.5 to 1.5 percent for 2023, and 1.0 to 2.0 percent for 2024.
In line with recent positive trends in global trade, goods exports are projected to expand to 8.0 percent by 2021 and 6.0 percent by 2022. Goods imports are also expected to grow by 12.0 percent this year and 10.0 percent in 2022 as domestic demand bounces back. For 2023 to 2024, goods exports and imports are projected to grow by 6.0 percent and 8.0 percent, respectively.
Furthermore, the growth forecast for services exports is maintained at 6.0 percent for 2021 to 2024. On the other hand, services imports is projected to grow by 7.0 percent in 2021 and to 8.0 percent for 2022 to 2024.
Medium-term fiscal program
Revenues are maintained at the DBCC approved levels in December 2020 at PhP2.88 trillion for 2021 and increased to PhP3.29 trillion for 2022. Meanwhile, as economic activities are expected to pick up over the medium-term, revenue collections are pegged at PhP3.59 trillion and PhP4.0 trillion for 2023 and 2024, respectively.
On the other hand, estimated disbursements for this year have been adjusted upwards from PhP4.66 trillion to PhP4.74 trillion, owing mainly to funding requirements to support Bayanihan II, including the procurement of COVID-19 vaccines, among others. Disbursements are projected to reach PhP4.95 trillion in 2022, and will further increase to PhP5.11 trillion in 2023 and PhP5.40 trillion in 2024.
The estimated disbursements for 2022 to 2024 already take into account the proposed Growth Equity Fund (GEF), which will be established in line with the implementation of the Supreme Court Ruling on the Mandanas-Garcia case. The GEF aims to assist poorer Local Government Units (LGUs) in addressing the problems of marginalization, unequal development, and high poverty incidence.
Given the revised revenue and disbursement program, the deficit program is adjusted upwards to 9.4 percent of GDP and 7.7 percent of GDP for 2021 and 2022, respectively. The DBCC will continue to adopt a fiscal consolidation strategy to gradually bring the deficit back to pre-COVID-19 levels with a projected 6.4 percent of GDP rate in 2023 and 5.4 percent of GDP rate in 2024.
The effects of the COVID-19 pandemic may remain in the short-term, but we are optimistic that the economy will return to its upward growth trajectory starting this year. This can be achieved through the accelerated implementation of the country’s recovery package and rollout of the national vaccination deployment to cover a broader segment of the population.
We will continue to manage risks and push for the gradual and safe reopening of the economy after addressing the present spike so that people can return to work and the government can address hunger and poverty, while maintaining the strict compliance to minimum public health standards.
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