THE Duterte administration’s economic managers on Friday kept the official gross domestic product (GDP) targets for this year and next, forecasting sustained growth and strong macroeconomic fundamentals.
However, the Development Budget Coordination Committee (DBCC) adjusted its trade and foreign exchange rate assumptions in anticipation of tighter monetary policy in the United States.
The interagency body that sets the government’s macroeconomic, revenue and spending targets still expects the economy, as measured by GDP, to grow within 6.5 percent to 7.5 percent this year.
“Macroeconomic assumptions are sustainable and there’s no need to change it,” Budget and Management Secretary Benjamin Diokno said in a news briefing after the DBCC meeting on Friday.
For 2018 to 2022, the DBCC also maintained the GDP target at 7 percent to 8 percent.
Inflation assumptions remain stable at 2 percent to 4 percent for 2017 to 2022 based on estimates by the Department of Finance that the higher excise taxes on petroleum, automobiles, and sugar-sweetened beverages would have minimal effects on prices.
“Expected drivers of economic growth include construction and infrastructure development, primarily fuelled by the administration’s ‘Build, Build, Build’ program,” the economic managers said.
Also, the increase in public spending is expected to propel the economy as the government plans to expand its investment in human capital, they added.
In terms of oil futures prices and forecasts, the DBCC maintained Dubai crude oil price assumptions for 2017 to 2022. The projected oil price in 2017 was kept at $40 to $55 per barrel, and $45 to $60 per barrel in 2018. Oil prices were still expected to rise to $50 to $65 per barrel from 2019 to 2022.
“Global economic and political developments have directly influenced the trend in emerging market currencies, including the peso,” the DBCC said, saying it retained the P48 to P50 per dollar exchange rate assumption for 2017, while the rate for the years 2018 to 2022 was adjusted to P48 to P51 per dollar.
The economic managers said this was in response to the resumption of the US Federal Reserve’s monetary policy tightening, as expectations of higher US interest rates and stronger demand for the US dollar could put depreciation pressure on the peso.
The DBCC also raised the goods export growth assumptions to 5 percent from 2 percent in 2017, 7 percent from 5 percent in 2018, and 9 percent from 7 percent in 2019. From 2020 to 2022, export growth would be at 9 percent, it said.
Meanwhile, growth in imports would be at 10 percent from 2017 to 2019 and 11 percent from 2020 to 2022.
For the medium-term revenue program, the DBCC approved revenue levels that took into account the impact of the first package of the comprehensive tax reform program passed by the House of Representatives, under House Bill 5636.
Revenues were projected to reach P2.427 trillion in 2017, equivalent to 15.2 percent of GDP. This was lower than the previous P2.482 trillion.
With the implementation of the first tax reform package in 2018, revenues would increase to P2.841 trillion, 16.3 percent of GDP, the DBCC said.
The revenue program is set to improve gradually to P4.504 trillion by 2022, equivalent to 17.8 percent of GDP.
“The first tax reform package will contribute P133.8 billion in revenues for 2018, P233.6 billion in 2019, P272.9 billion in 2020, P253.0 billion in 2021, and P269.9 billion in 2022,” the economic managers said.
The national budget for 2018 was pegged at P3.767 trillion, equivalent to 21.6 percent of GDP, representing a 12.4 percent growth from the P3.350-trillion budget for 2017.
The expenditure program (obligation budget) was projected to reach P5.661 trillion by 2022, equivalent to 22.3 percent of GDP.
The deficit-to-GDP ratio of 3 percent will be maintained from 2017 to 2022.
The infrastructure budget for 2018 was pegged at P1.101 trillion, equivalent to 6 3 percent of GDP. This was significantly higher than the P847.2-billion infrastructure budget in 2017, which was equivalent to 5.3 percent of GDP.
Infrastructure spending will rise to P1.840 trillion come 2022, 7.3 percent of GDP, the interagency body said.