President Rodrigo Duterte's economic team is expecting a strong economic comeback in 2021 and 2022.
At the same time, they conceded that the contraction for 2020 is sharper than initially estimated.
The Development Budget Coordination Committee (DBCC) on Thursday, December 3, said gross domestic product (GDP) would likely contract by 8.5% to 9.5% in 2020, worse than their estimate last July of about 5.5%.
Philippine GDP, so far, is the worst performer in Asia, registering a 10% contraction in the first 3 quarters of the year, while most countries started to post just single-digit contractions.
Despite the sharper-than-expected decline, the DBCC is sticking with its projection that GDP growth for 2021 would settle between 6.5% to 7.5%, and hit somewhere between 8% to 10% in 2022.
This ambitious projection was made along with the assumption that the entire country would still be in some form of quarantine restrictions for the entire 2021.
"The projection for next year assumes that we will have a modified GCQ [general community quarantine] or a relaxed version of that for the rest of the year because clearly, we cannot go back to normal life without the vaccine," said Acting Socioeconomic Planning Secretary Karl Chua.
Chua added that the economic managers revised their growth forecast upward for 2022 as the vaccine is expected to be widely available by that time, and lockdown restrictions are assumed to be fully lifted by then.
Duterte's team has been heavily criticized for being conservative on spending. But it seems that they plan on sticking to that strategy.
"We will not abandon the prudent fiscal management set by President Duterte when he assumed office in 2016 and put us in a good fiscal position ahead of the pandemic," the DBCC's joint statement said.
For 2020, the budget deficit is seen to hit 7.6% of GDP, narrower than July's assumption of 9.6%.
But the narrower gap for this year is due to lower expenses of P3.2 trillion (from P3.33 trillion), and slightly higher revenue collections of P2.85 trillion (from P2.52 trillion).
The deficit program for 2021 and 2022 are 8.9% and 7.3% of GDP, respectively.
The deficit program, the DBCC said, is "designed to balance the requirement of supporting economic recovery while keeping our debt-to-GDP ratio beneath a sustainable threshold."
The revenue adjustments already factor in the expected impact from the implementation of the Create bill, a measure that trims corporate income taxes and rationalizes tax incentives. (READ: [ANALYSIS] Why Duterte’s corporate tax cuts won’t save PH economy)
Finance Secretary Carlos Dominguez III once again insisted that more spending does not equate to stronger economic growth.
Dominguez said that a certain country spent an amount equivalent to around 20% of its GDP, but it still slipped into recession.
"There is no direct relationship between stimulus and GDP growth," Dominguez said, without mentioning the name of the country. – Rappler.com