INSTEAD of a recovery within this year as forecast earlier by two government officials, Philippine gross domestic product (GDP) is projected to register negative growth of 2.0 percent to 3.4 percent for 2020.
Any recovery is likely to happen in 2021, with the Development Budget Coordination Committee (DBCC) eyeing a strong rebound to a GDP growth of 7.1 to 8.1 percent.
The 2.0 percent to 3.4 percent contraction seen for the year is much worse than the 0.5 percent negative GDP growth during the 1998 Asian financial crisis.
In a statement, the DBCC said it adjusted the country's macroeconomic indicators and fiscal program for fiscal years (FY) 2020 to 2022 to take into account the economic fallout from the coronavirus disease (Covid-19) pandemic.
"These adjustments reflect the Duterte administration's priorities of saving lives and protecting communities, while providing support to vulnerable groups and stimulating the economy to create jobs and support growth," the inter-agency body said.
"These revised assumptions will also allow the government to operate with a more realistic and prudent fiscal stance as it flags the downside risks to the economy and the fiscal program for the rest of the year," it added.
The committee cited projections by the National Economic and Development Authority (Neda) which place the potential impact of the pandemic on the economy at P2 trillion, or about 9.4 percent of GDP in 2020.
"Timely implementation of a well-targeted recovery program, alongside efforts of the private sector, will mitigate the impact of the Covid-19 pandemic. Such a program will help the country regain confidence, attain higher economic growth, and restore employment rates to pre-crisis levels," the DBCC said.
In December 2019, the DBCC had set a GDP growth target of 6.5 to 7.5 percent for 2020 to 2022.
Macroeconomic assumptions
Given the weak global oil consumption due to the pandemic, the Bangko Sentral ng Pilipinas (BSP) recommended the adoption of a lower price assumption for Dubai crude of between US$23 to US$38 per barrel from the previous US$55 to US$70 per barrel.
For 2021 to 2022, the assumption is that the per barrel price will increase to between US$35 to US$50 per barrel, still lower than the original figures.
The BSP also recommended a downward adjustment of 2020 growth assumptions for goods exports and imports to -4.0 percent and -5.5 percent, respectively.
"This is in anticipation of the global economy's sharp contraction as a result of the Covid-19 pandemic," the committee said.
For 2021 to 2022, growth in goods exports is expected to recover to 5.0 percent while growth in goods imports is projected to bounce back to 8.0 percent.
Assumptions for the foreign exchange rate for 2020 to 2022 of P50 to P54 against the US dollar and the current inflation target range of 2.0 to 4.0 percent are maintained.
However, the average inflation rate for 2020 is now projected to range from 1.75 to 3.75 percent due to subdued demand.
Fiscal program
Revenue collection for 2020 is projected to be much lower at P2.61 trillion or 13.6 percent of GDP.
This is lower by P560 billion than the P3.17 trillion program approved by the DBCC on March 27, 2020.
Disbursements for this year, meanwhile, are estimated at P4.18 trillion, which is equivalent to 21.7 percent of GDP.
This slightly exceeds the program approved in March by P12 billion or 0.3 percent of GDP.
The emerging disbursement program takes into account the releases for Covid-19 initiatives charged to savings coming from austerity measures, among others.
With the revised revenue and disbursement program, the budget deficit is projected to reach P1.56 trillion or 8.1 percent of GDP.
This is 2.8 percentage points higher than the estimate of 5.3 percent of GDP announced last March.
"The DBCC maintains that the debt level remains manageable, especially as the Philippines enjoyed its lowest-recorded debt-to-GDP ratio of 39.6 percent last year," the committee said.
"Despite increased deficit spending, the national government's deficit-to-GDP ratio will remain in the median of comparable countries in Asean and in East Asia, among peers with similar credit ratings, and among other emerging market economies, as long as the ratio does not exceed 9.0 percent," the DBCC added.
Below this threshold, the debt-to-GDP ratio will be around 50 percent, which the committee said is far lower than the 71.6 percent in 2004.
The DBCC also revised the 2021 cash budget to P4.18 trillion or 19.6 percent of GDP, which is nearly the same level as the P4.10 trillion cash budget for 2020.
Earlier, Neda acting Director General Karl Kendrick Cha was optimistic that the economy will start its V-shaped recovery by June, when mass testing for the highly infectious novel coronavirus has been ramped up.
BSP Governor Benjamin Diokno, for his part, was confident that a recession would not happen and the Philippines would recover by the fourth quarter of the year.
A technical recession occurs when growth contracts for two consecutive quarters.
Philippine GDP contracted by 0.2 percent in the first quarter due to the Covid-19 pandemic. (MVI/VoxPop Philippines)