PH government revises fiscal and macroeconomic targets amid changing economic climate

The Development Budget Coordination Committee (DBCC) the multi-agency committee created to review and approve the Philippines’ macroeconomic targets, set targets for the duration of Philippine President Ferdinand Marcos Jr.’s administration (2022-2028) and continues to re-evaluate the said targets. So far, the committee already had 5 meetings since the beginning of the current administration.

GDP Growth Rate

At the beginning of President Marcos’ administration, DBCC has set baseline fiscal targets for the PH government which sets a 6.5- 7.5% GDP growth target for 2022 and 6.5 to 8.0% target from 2023 to 2028. The Philippines expanded 7.6% in the full year of 2024.

It was in December 2022 when the DBCC revised the PH government macroeconomic target for 2023 downward to 6.0- 7.0% in anticipation of a global economic slowdown for the year. The major economic downsides included the risks brought by the geopolitical tension between Russia and Ukraine war and the foreseen slowdown in major economies. Furthermore, as downside risks worsened, the growth projection for this year was adjusted lower to 6.0%-7.0%.

Projections of multilateral agencies like the International Monetary Fund (IMF) and the Asian Development Bank (ADB) fell within the lower bound of the revised government target for 2023 at 6.2% and 6.0%, respectively.

Inflation

The geopolitical tensions that emerged in 2022 have caused disruptions in the global supply chain and elevated inflation in economies around the world until 2023. Philippine inflation settled above the long-run projection of 2.0-4.0% at 5.8% and 6.0% in 2022 and 2023, respectively. Although inflation is expected to be lower this year than in previous years, economists are still expecting inflation to remain elevated as inflationary pressures include the global oil prices, supply-chain disruptions and peso depreciation still persist. In fact, BSP’s risk-adjusted inflation forecast this year is at the lower bound of the government target at 4.0%.

Medium-Term Fiscal Program

The DBCC is projecting an increase in government revenue banked on the current administration’s intensified efforts to enhance tax administration reforms through an efficient and modern tax system. Moreover, legislation that will provide the government with higher tax revenue is also underway. In my previous article, Department of Finance Secretary Ralph Recto mentions some of the pending tax reforms that are aimed at increasing government revenue collection.

DBCC evaluates the government revenue, expenditure and deficit program until 2028 through the Medium-Term Fiscal Program. Although the debt-to-GDP targets remain the same until 2028, the committee revised the Philippine fiscal program and increased revenue and expenditure targets.

The table below shows the baseline of DBCC’s medium-term fiscal program as of its first meeting and the latest revised projections this month, April 2024.

The current administration has already been in place for almost two years and still has 4 more years to achieve the medium-term fiscal targets for the Philippines. DBCC is expected to regularly revisit its targets to respond to global and local events influencing the economic country’s climate and achieve its goal to reduce poverty rate to 9% by 2028.

Economists forecast the level of economic growth for this year until the end of the current administration. Although existing and expected risks were considered in the outlook for the country, economic outlook for the rest of President Marcos’ term remains uncertain given the unexpected events which may occur.

MARIAN MONETTE FLORENDO is a Research and Business Analytics Officer of the Financial Markets Sector at Metrobank. She provides macroeconomic research for the bank. Her academic background is in Mathematics and Economics. She loves solving puzzles and watching mystery movies.