By Chino S. Leyco
Manila-based Asian Development Bank (ADB) slashed its economic growth forecast for the Philippines this year owing to El Niño dry spells along with the delayed approval of the national budget.
Based on the ADB Outlook 2019 report released yesterday, the Philippine economy, as measured by its gross domestic product (GDP), is seen to expand by 6.4 percent this year, slower than the bank’s earlier projection of 6.7 percent.
Aside from the domestic risks, ADB also cited some negative factors overseas, including the global trade tensions and heightened volatility in the financial markets, as drags to the country’s growth potential.
“Domestic risks to growth would be severe or prolonged El Niño dry spells and the delay in approving the 2019 budget, which could slow the implementation of new large infrastructure projects and social programs this year,” the ADB report said.
“External risks would stem from an unexpectedly deep slowdown of economic growth in the advanced economies, which are major export markets and sources of foreign direct investment for the Philippines,” the bank added.
Earlier, inter-agency Development Budget Coordination Committee (DBCC) estimated the impact on the economy of the continued budget reenactment will be at -0.7 percentage point to -0.9 percentage point if last year’s budget is implemented until end of this month.
The negative impact would further increase to -1.4 percentage points to -1.9 percentage points if the budget is enacted only in August 2019, and -2.1 percentage points to -2.8 percentage points under a full-year reenacted budget.
But despite the slower GDP forecast, ADB’s growth estimate is still within the Duterte administration’s target range of 6.0 percent to 7.0 percent.
“GDP growth prospects for this year and next are supported by recent government reform to lay the foundation for raising growth potential in the medium term,” ADB said.
“Besides a massive infrastructure program, the government has implemented the TRAIN Law, the first package of comprehensive reform, to make the tax system more equitable and efficient,” it added.
For 2020, the ABD expects the economy to increase at the same rate of 6.4 percent amid strengthening domestic investment and consumption more than offset weakening external demand.
“Private consumption should pick up with a low unemployment rate, growth in formal sector employment, a continued rise in remittances, and lower inflation,” ADB said.
Meanwhile, the multi-lateral institution is expecting softer rate of increase in consumer prices at 3.8 percent, but it is at the upper-end of the Duterte administration’s target of 2.0 percent to 4.0 per en.
“Inflation is projected to moderate… in 2019 and 3.5 percent in 2020 as global oil prices decline and last year’s monetary tightening continues to be effective,” ADB said.
“A second round of excise tax rises on fuels in 2019 and a possible decline in agricultural output this year may add to inflationary pressure, though food supply should improve following the approval in February 2019 of a law that replaces quantitative restrictions on rice imports with tariffs,” it added.
As inflation stays within the government’s target range, ADB said the central bank’s monetary policy is likely to remain unchanged for some time.