DBCC lowers inflation assumption for this year

By Luisa Maria Jacinta C. Jocson, Reporter

THE Development Budget Coordination Committee (DBCC) lowered its inflation assumption for this year as prices are expected to ease further.

It also revised other assumptions and its fiscal program but kept its growth targets until 2028 as it expects the economy to remain robust despite external risks.

Economic managers now expect inflation to settle between 5% and 6% this year, lower than the 5-7% assumption it gave in April.

“The average inflation rate assumption for 2023 has been narrowed partly due to a consistent slowdown in inflation over the past four months,” Budget Secretary Amenah F. Pangandaman said at a press briefing following the 185th DBCC meeting on Friday.

Headline inflation eased to 6.1% in May, the lowest print in a year, amid easing food and transport prices. This brought the five-month average to 7.5%.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 5.5% this year.

Meanwhile, the DBCC maintained its inflation assumption of 2-4% for 2024 to 2028.

“It is expected that the inflation rate will return to the target range of 2-4% by 2024 and 2028 as the administration, through the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO), provides proactive measures to address the primary drivers of inflation,” Ms. Pangandaman said.

“This, together with appropriate monetary policy actions of the BSP, will help ensure a return to the inflation target over the policy horizon,” she added.

Meanwhile, the DBCC maintained its growth targets of 6-7% for 2023 and 6.5-8% for 2024 to 2028.

“We have maintained our growth assumptions, taking into account both domestic and external risks. These projections have already taken into account the risks posed by El Niño and other natural disasters, global trade tensions, and value chain disruptions, among other factors,” Ms. Pangandaman said.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan noted that the growth target was maintained despite continued external headwinds.

“We recognize, on one hand, the external environment today is still not as good as we would like (it to be). The forecast for the global environment is still on the downtrend,” he said.

“On the other hand, the performance of the economy in the first quarter is much more improved than what most of us anticipated, but there are also still lag effects from inflation and high interest rates from last year, those are expected to take their course for the rest of the year. Overall, putting these factors together, 6-7% is very much manageable,” he added.

The Philippine economy expanded by 6.4% in the first quarter, slower than the revised 7.1% in the previous quarter, and the 8% expansion in the first quarter a year ago.

Mr. Balisacan last month said that GDP must grow by an average of 5.9% in the remaining three quarters to achieve the lower end of the government’s 6-7% target. It must average 7.2% to meet the upper end of the target.

Ms. Pangandaman said the DBCC is “confident” that the country will reach its growth goals and achieve upper-middle income status in the next two years.

The Philippines is currently classified as a lower middle-income country by the World Bank, with a gross national income (GNI) per capita at $3,640 in 2021.

An upper middle-income country has a per capita income range of $4,256-$13,205.

Meanwhile, the DBCC revised its peso-dollar exchange rate assumption for this year to P54-P57, weaker than the P53-P57 it gave in April. Still, it kept its P53-P57 assumption for 2024 to 2028.

“The peso will continue to be supported by structural foreign exchange inflows and ample international reserves,” Ms. Pangandaman said.

Meanwhile, the growth projections for exports and imports were revised downward due to dampened global demand and trade prospects.

The DBCC lowered its goods exports and imports growth assumptions to 1% and 2%, respectively, from 3% and 4% previously.

BSP Deputy Governor Francisco G. Dakila, Jr. said that the declaration of exports was due to weak global demand for semiconductors.

“Decelerations were noted in coconut products and mineral products, mainly driven by the decline in commodity prices,” he added.

For goods imports, Mr. Dakila said that the downward revision was due to moderating commodity prices and imports of raw materials and immediate goods, as well as weaker manufacturing activity,

However, the DBCC kept its 6-8% growth projection for both goods exports and imports for 2024 to 2028.

The economic managers also maintained their assumption for Dubai crude oil at $70-$90 per barrel for 2023 and 2024, and $60-$80 per barrel for 2025 to 2028, citing signals of falling global crude oil prices.

FISCAL PROGRAM

Meanwhile, the DBCC revised its fiscal program for 2024.

The revenue program for next year was raised to P4.201 trillion or 15.9% of GDP from P4.184 trillion or 15.7% of GDP.

The spending program was also increased to P5.564 trillion or 21% of GDP from P5.547 trillion or 20.8% of GDP.

However, the deficit ceiling for 2024 was kept at 5.1% of GDP, equivalent to P1.363 trillion.

“Disbursements will remain above 20% of GDP over the entire plan period, with priority given to infrastructure and socio-economic development. Deficit is also targeted to gradually reach pre-pandemic levels of 3% percent of GDP in 2028 from this year’s 6.1%,” Ms. Pangandaman said.

The projected 2024 national budget was raised to P5.768 trillion, up 9.5% from this year’s P5.268-trillion budget. This is also slightly higher than the P5.75 trillion earlier announced by the Department of Budget and Management (DBM).

“The proposed national budget will continue to prioritize expenditure items that promote social and economic transformation through infrastructure development, food security, digital transformation, and human capital development,” Ms. Pangandaman said.

She added that the 2024 budget will “only include implementation-ready agency proposals.”

Ms. Pangandaman said that the proposed 2024 budget will likely be presented to the Cabinet on June 22, and will be presented to the Congress in three to five days after the State of the Nation Address (SONA) in July.