THE Aquino Administration has apparently realized the economy in 2015 may not be as robust as previously thought.
The shift in attitude from ebullience to apprehension about the economy’s prospects followed the release of February’s negative export performance data on Wednesday, with the Development Budget Coordination Committee (DBCC) announcing it had cut the government’s 2015 revenue target by P62 billion.
On Thursday, the BSP disclosed it was reviewing its forecast for the country’s balance of payments (BOP), with a possible revision to be announced next month.
The DBCC decision reduced the revenue goal from P2.337 trillion to P2.275 trillion, which, based on the 2015 government budget of P2.606 trillion effectively raised the new debt requirement for the year to P331 billion.
The government also lowered its peso exchange rate forecast, from a range of P42 to P45 to the dollar to a range of P43 to P46.
Although the BSP gave no indication of which direction its BOP forecast would take, the announcement—on a holiday, no less—that it was under review suggested a downward revision is likely. The current goal is a full-year surplus of $1 billion; the balance of payments at the end of 2014 was a deficit of $2.88 billion, a reversal and then some from the more than $5 billion surplus at the end of 2013.
The bugaboo the government is seeing is the ‘external shock:’ The drop in exports was blamed on the “still fragile global economy,” while the lowering of the government’s revenue target was done “after taking into account the expected impact of lower oil prices on the economy.” Likewise, BOP is subject to “possible global growth risks,” according to the BSP. The overall thesis is that lower oil prices, lower prices on some other key commodities and slowing growth in major economies like China will retard the Philippines’ own economic performance.
In spite of this, the government has retained its blithely optimistic GDP growth target of 7 to 8 percent. That seems like a paradox; lower government revenues, a tighter balance of payments position, and slackening export performance—NEDA chief Arsenio Balisacan warned that results from March were not likely to be very encouraging—logically all point to lower overall economic growth.
Not revising the GDP target simply indicates the level of uncertainty the government has about its own outlook, and suggests that there is some disagreement among the various agencies represented in the DBCC. And there is a practical political reason for not lowering the GDP forecast; by keeping it high while stressing that ‘global’ circumstances are to blame for nudging expectations for other indicators lower, the Administration is already covering its ass, to use a crude term everyone understands. If GDP results throughout the year show that the growth rate is going to fall short of the government’s 7 to 8 percent goal, the excuse is already prepared: “Don’t blame us, we would have hit the mark if the rest of the world could get its act together.”
That is more than a little disingenuous, considering the assertion that has been repeatedly made by the BSP, NEDA, the Department of Finance, and anyone else who gets a chance to offer an opinion that the economy is “well insulated” against external shocks. The economy has certainly shown it is susceptible in some ways to external developments, but the government either can’t or won’t figure out exactly how, moving from underestimating the impact of global factors to unreasonably overestimating them.
External factors such as export demand from big markets like China and Japan, oil prices, and monetary policy in the US will only aggravate an economic slowdown, not cause it.
That, the Philippines is doing on its own. What was not mentioned in the discussion of February’s lower export figures—the third straight month of decline—is the several preceding months of lower imports. Lower oil prices did account for some of that, but the downturn in domestic production was largely to blame.
Confidence in the Administration’s ability to correctly assess and manage economic developments is certainly not encouraged by ongoing process disasters such as the Bureau of Internal Revenue’s almost completely unusable electronic tax filing system, and the Land Transportation Office’s ham-fisted management of what one would think should be the relatively easy job of registering vehicles and providing license plates for them.
Very few, if any, analysts see the economy growing at the ambitious rate the government is rather irrationally expecting; GDP growth estimates range from about 5.9 percent to about 6.7 percent among the more optimistic. Against the backdrop of widespread informed opinion and publicly embarrassing, expensive breakdowns in basic institutional processes, the government’s outlook is increasingly ridiculous, which even the Administration seems to be starting to realize.