DBCC maintains GDP growth targets

THE DEVELOPMENT Budget Coordination Committee (DBCC) maintained its economic growth targets for this year through 2028, as robust domestic demand will likely help the economy to weather external headwinds.

At the same time, economic managers raised inflation rate assumption for this year, as prices of food and energy remain stubbornly high.

“We maintained our growth targets at 6-7% for 2023 and 6.5-8% for 2024 to 2028 in consideration of the risks posed by geopolitical and trade tensions, possible global economic slowdown, as well as weather disturbances in the country,” the DBCC said in a statement.

The 6-7% gross domestic product (GDP) projection for this year is slower than the 7.6% growth in 2022.

“We do think that there’s scope for continuing to grow robustly despite external headwinds. The economy is quite robust at this point,” National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said at a briefing.

Mr. Balisacan said the DBCC expects the first-quarter GDP to be “closer” to the 7.1% print in the fourth quarter. The economy grew by a revised 8.2% in the first quarter of 2022.

First-quarter GDP data is scheduled to be released on May 11.

Meanwhile, the DBCC said it expects inflation to settle between 5% and 7% this year, faster than the previous assumption of 2.5-4.5%, “given the persisting high prices of food, energy, and transport costs.”

“The revision to the inflation outlook follows the year-to-date inflation that we have of 8.3% so far… The year-to-date number is significantly above the earlier assumption of the DBCC,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila, Jr. said at the same briefing.

He noted the DBCC’s inflation rate assumption is in line with the BSP’s full-year inflation projection of 6% this year.

The DBCC expects inflation to return to the 2-4% target range between 2024 and 2028.

“We are projecting that the inflation path will continue to decelerate and barring the occurrence of further shocks coming from the supply side, turn to within target sometime in the fourth quarter this year,” Mr. Dakila said.

Finance Secretary Benjamin E. Diokno said the DBCC still sees oil prices decreasing this year despite the planned output cut by the Organization of the Petroleum Exporting Countries and its allies (OPEC+).

The DBCC lowered its assumption for Dubai crude oil prices this year to USD 70-USD 90 per barrel from the $80-$100 range previously.

“The latest forecasts suggest that global crude oil prices will continue to decline in 2024 before stabilizing at USD 60 to USD 80 per barrel between 2025 and 2028 as the latest forecasts suggest falling global crude oil prices over the medium term,” it added.

Mr. Balisacan said the government is preparing for the anticipated return of the El Niño weather phenomenon, which may result in warmer temperatures and dry spells.

“The agencies are quite active in putting in place the measures that would mitigate the effects of the El Nino,” he said.

The DBCC also lowered the peso-dollar exchange rate assumption to PHP 53-PHP 57 for this year until 2028.

“This positive outturn is attributed to the BSP’s policy normalization measures, as well as expected inflows from improvements in tourism revenues and OFW (overseas Filipino worker) remittances due to the reopening of the country’s economy,” the DBCC said.

Mr. Dakila said the growth of services exports will likely support the peso over the medium term.

For this year, the DBCC kept the goods exports and imports growth targets at 3% and 4%, respectively. Goods exports and imports are expected to grow by 6% and 8%, respectively, in 2024-2028.

“Meanwhile, services exports are expected to perform better this year and next year following the recovery of the tourism sector and the continued resilience of the BPO (business process outsourcing) sector,” the DBCC said.

The DBCC raised its services exports growth assumption to 17% this year (from 12% previously), and 16% (from 6% previously) in 2024.

For services imports, the DBCC hiked its estimate to 11% (from 8%) this year and to 10% (from 8%) in 2024.

“The trade assumptions reflect the gradual normalization of economic activity both globally and domestically,” the DBCC said.

New taxes
The DBCC said the deficit-to-GDP ratio is still expected to decline annually from 6.1% this year to 3% in 2028.

Economic managers raised their revenue projections as they expect the proposed tax measures to take effect next year.

“Revenue projections in the medium term are expected to improve from PHP 3.73 trillion in 2023 to PHP 6.62 trillion in 2028, as proposed tax revenue measures under the (Medium-Term Fiscal Framework) such as the Package 4 or the Passive Income and Financial Intermediary Taxation Act (PIFITA), value-added tax (VAT) on digital service providers, and excise taxes on single-use plastics and pre-mixed alcohol are expected to be implemented starting 2024,” the DBCC said.

According to Mr. Diokno, the proposed PIFITA will generate PHP 8.5 billion, while the VAT on digital service providers will yield PHP 13.7 billion in revenues next year.

The House of Representatives have approved these new tax measures on final reading. However, the Senate is still deliberating on the counterpart bills.

Economic managers are still pushing for the passage of three tax reform measures to boost revenues, such as the excise tax on sweetened beverages, motor vehicle road user’s tax, and mining fiscal regime.

Mr. Diokno said the excise tax on sweetened beverages is expected to generate PHP 53.7-billion revenues in the first year of implementation.

He said the projected revenues of the modern vehicle road user’s tax will reach PHP 15.8 billion in the first year and up to PHP 48.6 billion by the third year.

The proposed fiscal regime for the mining sector is expected to yield PHP 12.4 billion in 2025, PHP 12.9 billion in 2026, PHP 13.4 billion in 2027, and PHP 13.9 billion in 2028.

The House last August approved the mining fiscal regime, which would bring the country’s effective tax rate on mining (considering all taxes) to 51%, up from 38% under the current system.

The DBCC also raised its disbursements program from 2023 to 2028, “reaching PHP 5.23 trillion in 2023 and expanding to PHP 7.77 trillion in 2028.”

“As we strive to sustain our high-growth performance and achieve a truly inclusive and sustainable economy, the DBCC is committed to taking proactive measures to bring inflation back within the target range while developing physical, social, and digital infrastructures to gear up the Philippines for more investments and opportunities that every Filipino can enjoy,” the DBCC said. — By Keisha B. Ta-asan, Reporter