DBCC adjusts medium-term macroeconomic targets

By Joann Villanueva

April 24, 2018, 6:16 pm

MANILA -- Economic managers on Tuesday adjusted some medium-term macroeconomic targets in view of fresh developments in both the domestic and international fronts.

In a briefing, Budget Secretary Benjamin Diokno said the peso-dollar exchange rate assumption for 2018-2022 was adjusted upward to 50-53 from 49-52 by the inter-agency Development Budget and Coordination Committee (DBCC) last December. To date, the local currency is already trading at the 52-level to the greenback.

Also changed was the six-month London Interbank offered rate (LIBOR) assumption to 2 percent to 3 percent.

The goods exports assumption changed to 10 percent from 9 percent for this year while the assumption for the 2019-2022 period was kept at 9 percent. Goods imports assumption for 2018 was also changed to 11 percent from 10 percent but was maintained at 10 percent for 2019-2022.

Assumption for Dubai crude oil prices for 2018 was changed to USD55 to USD70 per barrel from USD50 to USD65 per barrel while the assumption for next year until 2022 was maintained at USD50 to USD65 a barrel.

Relatively, due to the expected increase of government revenues under the Tax Reform for Acceleration and Inclusion (TRAIN) Law Packages 1A and 1B, with the latter expected to be approved by mid-year, the medium-term revenue program was likewise revised.

Under the new assumptions, revenues for 2018 are now expected to reach PHP2.846 trillion, up by PHP57.3 billion from the PHP2.789 trillion projection earlier. Revenues this year alone are seen to go up by as much as 16.3 percent of the gross domestic product (GDP) to 17.5 percent of GDP by 2022.

This, as Packages 1A and 1B of the Comprehensive Tax Reform Program (CTRP) are seen to contribute an additional PHP124.9 billion in revenues this year alone and as much as PHP215.8 billion by 2022.

With the higher revenues, economic managers also hiked the disbursement program, with this year’s figure hiked from PHP3.313 trillion to PHP3.370 trillion. Its share of GDP is projected to account for 19.3 percent this year to 20.5 percent by 2022.

The borrowing mix was also changed from 75:25 to 65:35 but is still in favor of domestic fund sources. Diokno said the change was made “to allow us to borrow more,” citing offers from China, Japan and Korea, which have offered loans at low rates and with long term.

He noted that for the Metro Manila subway project alone, Japan, through the Japan International Cooperation Agency (JICA), is offering a 40-year term loan with a 12-year grace period and annual interest rate of 0.10 percent for non-consulting services and 0.01 percent per annum for consulting services. This is the biggest project under the Duterte administration's Build, Build, Build program.

Meanwhile, DBCC left some economic assumptions unaltered, such as the GDP target at 7 percent to 8 percent for 2018-2022, the budget deficit at 3 percent of GDP until 2022 and the 2018-2022 inflation rate at 2 percent to 4 percent.

And as the government shifts to cash-based budget starting 2019, the budget chief said next year’s budget assumption of PHP3.469 trillion is higher than the previous assumption of PHP3.401 trillion. He said current disbursement went up by 22.2 percent to date to PHP579.9 billion from PHP474 billion same period last year.

“In sum, government expenditures rose from PHP615.4 billion last year to PHP782 billion this year, 27.1 percent higher from the first quarter alone,” Diokno said.

During the same briefing, Monetary Board member Felipe Medalla said the change in the foreign exchange assumption is inevitable given the impact of rising US interest rates.

“Our view is that given the fiscal stimulus in the US, there’s really no other direction but for US interest rates to rise. Therefore, there would be some clear movement of money to the US,” he said, stressing the need to “take the current rates as the new normal.” Medalla, however, said this change is not expected to weaken the Philippine peso’s competitiveness, since inflation, although on the rise, remains within target.

In the first quarter of 2018, inflation averaged at 3.8 percent, still within the government’s 2 percent to 4 percent target until 2019. (PNA)