The Market Monitor Minding the Nation's Business
By Luis Leoncio
The economic managers of President Duterte are determined to undo the effects of the “massive underspending” of the previous administration, but Budget Secretary Benjamin E. Diokno said the public must be prepared for some painful measures, as “things will get worse before they get better.”
Diokno estimated that the Aquino administration underspent the budget by as much as P1 trillion in the past six years. The amount, he said, should have been spent for infrastructure and government services that the people needed.
During the first meeting of the Cabinet-level Development Budget Coordination Committee (DBCC) last week, the administration’s economic officials said the bitter pills that the public may have to bear included the possible increase in the value-added tax, from the current 10 percent to between 12 percent and 15 percent, and the 24-hour infrastructure works that could worsen the vehicular-traffic problem and cause more inconvenience, especially to those living near the construction areas.
Finance Secretary Carlos Dominguez III said the government’s aim to increase revenues would be backed by a tax package pegged on the current inflation rate.
”We’re looking at additional tax revenues,” he said, citing that the readjustment would also cover fuel products.
Dominguez said he would also be reviewing exemptions to the value-added tax (VAT), with a goal of broadening the tax base.
Diokno said the proposal for continuous infrastructure construction was already brought to President Duterte’s attention and he reportedly said it was OK with him.
“We’re considering 24/7 construction for major Metro Manila, Cebu and Davao projects in recognition of costs of project delays,” Diokno said.
He added that the 2017 budget proposal of P3.3 trillion would be filed next month.
The budget will mostly be geared toward infrastructure buildup for next year, he said.
Diokno also said the target for gross domestic product (GDP) this year was also reduced, noting that the administration was adjusting the budget and the effects would not take hold in the next six months.
Diokno said the DBCC has set a GDP target of 6 percent to 7 percent this year against the Aquino administration’s earlier set goal of 6.8 percent to 7.8 percent. “The targets will be conservative this year because half the year is over. We have the next six months to work on achieving a higher rate,” Socioeconomic Planning Secretary Ernesto Pernia said. Pernia, however, said the economic uptrend is expected to be maintained for the rest of the year and may finish 2016 at a growth of 7 percent at most, mainly from election-related spending. The DBCC also downgraded its economic targets for 2017, aiming for a 6.5-percent to 7.5-percent growth, compared with the 6.6-percent to 7.6-percent expansion set earlier.
From 2018 to 2022, the DBCC is forecasting a 7-percent to 8-percent yearly growth.
Revenues are projected to reach P2.573 trillion against P3 trillion in expenditures this year, Dominguez said. He added revenues for te succeeding years are expected to hit from P2.975 trillion and P3 trillion yearly. The original revenue goal was P3 trillion this year, but lower collections from the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR) have been projected.
The peso is also expected to trade within the P45 to P48 per $1 range for the next six years, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said.
“The balance of payments (BOP) and current accounts are expected to remain in surplus despite the challenging external conditions. A current-account surplus is expected to be maintained on account of remittances, BPOs [business-process outsourcing], tourism, and other income items,” he said.
In the first quarter of 2016, the domestic economy posted the highest expansion in Asia, with a 6.9-percent growth, as measured by GDP.
The government is yet to report the domestic economy’s second-quarter performance.
”We have the next six months to work on in terms of achieving higher growth rate. Expect the second half to grow slower on waning election spending, weak agriculture and poor exports,” Diokno said.
Pernia said the new administration still needed to adjust, as he cited additional growth risks.
Aside from existing risks from developments on the global economy such as the slower global growth, Brexit and recession of the Japanese economy, Pernia said the future impact of La Niña is also seen to negatively affect domestic growth.