MANILA - The Philippine economy is seen shrinking by 5.5 percent this year, the body in charge of setting the government’s macroeconomic goals and policies said on Thursday following the deep contraction in the second quarter as the COVID-19 crisis continued.
The Development Budget Coordination Committee revised its earlier 2020 GDP projection of between -2 and -3.4 percent due to the impact of the COVID-19 pandemic on tourism, trade and remittances, it said.
"The DBCC is confident that the country is on track to economic recovery next year, with GDP growth expected to reach 6.5 to 7.5 percent by FY 2021 to 2022, as the National Government continues its pump-priming activities. The priority implementation of the Build, Build, Build infrastructure program and revitalization of the industry and services sectors are expected to lead the recovery," the DBCC said in a statement.
The cabinet-level DBCC set 2021 GDP at 6.5 percent, and 7.5 percent in 2022.
Second quarter GDP plunged to 16.5 percent, its largest drop since 1981 according to the Philippine Statistics Authority, plunging the country into recession.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said "the worst is behind us, but not out of the woods yet."
"The Q2 GDP numbers were largely due to the comprehensive lockdown during the quarter. As we gradually reopen the economy, economic activity has started to pick up. No doubt, given the sharp drop of the economy in Q2, I’m convinced that Q3 will be better than Q2, and that Q4 will be much better than Q3," added Diokno.
Inflation rate assumption for 2020 was also revised and narrowed down to 1.75 to 2.75 percent on "subdued demand," while inflation assumption for 2021 to 2022 was retained at 2 to 4 percent.
The DBCC also again lowered the estimated revenue collections this year to P2.52 trillion from the P2.61 trillion projection last May. This was much lower than the P3.14 trillion in actual revenue collections last year.
The DBCC said the decline in revenue collections is a result of deeper contraction in real GDP growth and the P42 billion in estimated foregone revenues from the implementation of the proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
CREATE, which the Department of Finance dubbed as a stimulus measure, will reduce the corporate income tax rate to 25 percent from 30 percent.
The DBCC said revenues are projected to grow to P2.72 trillion in 2021, and P3.03 trillion in 2022.
Spending, meanwhile, is expected to increase to P4.47 trillion next year and P4.68 trillion in 2022 which means the government will need to borrow more.
“Given the revenue and disbursement plans approved by the DBCC, the deficit target over the medium-term is expected to increase from 8.4 percent to 9.6 percent of GDP in 2020, from 6.6 percent to 8.5 percent in 2021, and from 5.0 percent to 7.2 percent in 2022.
The DBCC said that despite the higher level of borrowing, it is confident that the national government’s debt will be kept “within the 60 percent internationally-recommended debt threshold” by 2022.
Lawmakers have been calling for even higher stimulus spending by the government to further cushion the economic impact of the pandemic.
-- With a report from Warren de Guzman, ABS-CBN News